UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

___________________________

FORM 10-Q


x			QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

			For the quarterly period ended ~~September~~June 30, ~~2022~~2023

OR

o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

			For the transition period from __________ to __________

Commission File No. 000-20827

____________________

CASS INFORMATION SYSTEMS, INC.

(Exact name of registrant as specified in its charter)


Missouri			43-1265338
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
12444 Powerscourt Drive, Suite 550 St. Louis, Missouri			63131
(Address of principal executive offices)			(Zip Code)

(314) 506-5500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbols

Name of each exchange on which registered

Common stock, par value $.50

CASS

The Nasdaq Global Select Market

____________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No x

The number of shares outstanding of the registrant's only class of common stock as of ~~October 22, 2022:~~July 27, 2023: Common stock, par value $.50 per share – ~~13,661,353~~13,666,955 shares outstanding.

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Table of Contents

TABLE OF CONTENTS


PART I – Financial Information
Item 1.	FINANCIAL STATEMENTS
	Consolidated Balance Sheets ~~September~~June 30, 2023 ~~, 2022~~ (unaudited) and December 31, ~~2021~~2022	3
	Consolidated Statements of Income Three and ~~Nine~~Six Months Ended ~~September~~ June 30 ~~30,~~, 2023 and 2022 ~~and 2021~~ (unaudited)	4
	Consolidated Statements of Comprehensive Income Three and Six ~~Nine~~Months Ended ~~September~~June 30 ~~30,~~, 2023 and 2022 ~~and 2021~~ (unaudited)	5
	Consolidated Statements of Cash Flows ~~Nine~~Six Months Ended ~~September~~June 30 ~~30,~~, 2023 and 2022 ~~and 2021~~ (unaudited)	6
	Consolidated Statements of Shareholders’ Equity Three and Six ~~Nine~~ Months Ended ~~September~~ June 30 ~~30,~~, 2023 and 2022 ~~and 2021~~ (unaudited)	8
	Notes to Consolidated Financial Statements (unaudited)	9
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2322
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3635
Item 4.	CONTROLS AND PROCEDURES	3635
PART II – Other Information – Items 1. – 6.		3736
SIGNATURES		3839

Forward-looking Statements - Factors That May Affect Future Results

This report may contain or incorporate by reference forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although we believe that, in making any such statements, our expectations are based on reasonable assumptions, forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors beyond our control, which may cause future performance to be materially different from expected performance summarized in the forward-looking statements. These risks, uncertainties and other factors are discussed in Part I, Item 1A, “Risk Factors” of the Company’s ~~2021~~2022 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”), which may be updated from time to time in our future filings with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, or changes to future results over time.

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Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands except Share and Per Share Data)


		September 30, 2022 (Unaudited)		December 31, 2021			June 30, 2023 (Unaudited)		December 31, 2022
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	14,799	$	12,301	Cash and due from banks	$	27,361	$	20,995
Short-term investments	Short-term investments	332,195		502,627		Short-term investments	243,112		179,947
Cash and cash equivalents	Cash and cash equivalents	346,994		514,928		Cash and cash equivalents	270,473		200,942
Securities available-for-sale, at fair value	Securities available-for-sale, at fair value	763,789		673,453		Securities available-for-sale, at fair value	637,513		754,468

Loans	Loans	1,037,101		960,567		Loans	1,055,848		1,082,906
Less: Allowance for credit losses	Less: Allowance for credit losses	13,049		12,041		Less: Allowance for credit losses	13,194		13,539
Loans, net	Loans, net	1,024,052		948,526		Loans, net	1,042,654		1,069,367
Payments in advance of funding	Payments in advance of funding	269,221		291,427		Payments in advance of funding	269,180		293,775
Premises and equipment, net	Premises and equipment, net	19,375		18,113		Premises and equipment, net	24,320		19,958
Investment in bank-owned life insurance	Investment in bank-owned life insurance	47,714		43,176		Investment in bank-owned life insurance	48,564		47,998
Goodwill	Goodwill	17,309		14,262		Goodwill	17,309		17,309
Other intangible assets, net	Other intangible assets, net	4,321		2,564		Other intangible assets, net	3,735		4,126
Accounts and drafts receivable from customers						Accounts and drafts receivable from customers	83,627		95,779
Other assets	Other assets	118,040		48,452		Other assets	73,421		69,301
Total assets	Total assets	$	2,610,815	$	2,554,901	Total assets	$	2,470,796	$	2,573,023

Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Liabilities:	Liabilities:					Liabilities:
Deposits:	Deposits:					Deposits:
Noninterest-bearing	Noninterest-bearing	$	581,731	$	582,642	Noninterest-bearing	$	679,107	$	642,757
Interest-bearing	Interest-bearing	647,990		638,861		Interest-bearing	512,327		614,460
Total deposits	Total deposits	1,229,721		1,221,503		Total deposits	1,191,434		1,257,217
Accounts and drafts payable	Accounts and drafts payable	1,146,334		1,050,396		Accounts and drafts payable	1,021,524		1,067,600
Other liabilities	Other liabilities	43,025		37,204		Other liabilities	42,692		41,881
Total liabilities	Total liabilities	2,419,080		2,309,103		Total liabilities	2,255,650		2,366,698

Shareholders’ Equity:	Shareholders’ Equity:					Shareholders’ Equity:
Preferred stock, par value $.50 per share; 2,000,000 shares authorized and no shares issued	Preferred stock, par value $.50 per share; 2,000,000 shares authorized and no shares issued	—		—		Preferred stock, par value $.50 per share; 2,000,000 shares authorized and no shares issued	—		—
Common stock, par value $.50 per share; 40,000,000 shares authorized and 15,505,772 shares issued at September 30, 2022 and December 31, 2021; 13,660,388 and 13,734,295 shares outstanding at September 30, 2022 and December 31, 2021, respectively.		7,753		7,753
Common stock, par value $.50 per share; 40,000,000 shares authorized and 15,505,772 shares issued at June 30, 2023 and December 31, 2022; 13,668,077 and 13,669,656 shares outstanding at June 30, 2023 and December 31, 2022, respectively.						Common stock, par value $.50 per share; 40,000,000 shares authorized and 15,505,772 shares issued at June 30, 2023 and December 31, 2022; 13,668,077 and 13,669,656 shares outstanding at June 30, 2023 and December 31, 2022, respectively.	7,753		7,753
Additional paid-in capital	Additional paid-in capital	205,624		204,276		Additional paid-in capital	206,734		207,422
Retained earnings	Retained earnings	126,361		112,220		Retained earnings	137,996		131,682
Common shares in treasury, at cost (1,845,384 shares at September 30, 2022 and 1,771,477 shares at December 31, 2021)		(81,624)		(78,904)
Accumulated other comprehensive (loss) income		(66,379)		453
Common shares in treasury, at cost (1,837,695 shares at June 30, 2023 and 1,836,116 shares at December 31, 2022)						Common shares in treasury, at cost (1,837,695 shares at June 30, 2023 and 1,836,116 shares at December 31, 2022)	(80,943)		(81,211)
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(56,394)		(59,321)
Total shareholders’ equity	Total shareholders’ equity	191,735		245,798		Total shareholders’ equity	215,146		206,325
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	2,610,815	$	2,554,901	Total liabilities and shareholders’ equity	$	2,470,796	$	2,573,023

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in Thousands except Per Share Data)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Fee Revenue and Other Income:	Fee Revenue and Other Income:									Fee Revenue and Other Income:
Processing fees	Processing fees	$	18,964	$	18,461	$	57,184	$	55,882	Processing fees	$	19,386	$	19,184	$	38,899	$	38,220
Financial fees	Financial fees	11,252		8,624		32,406		23,122		Financial fees	11,662		10,623		22,921		21,155
Other	Other	1,568		492		3,275		1,735		Other	1,025		844		2,360		1,706
Total fee revenue and other income	Total fee revenue and other income	31,784		27,577		92,865		80,739		Total fee revenue and other income	32,073		30,651		64,180		61,081

Interest Income:	Interest Income:									Interest Income:
Interest and fees on loans	Interest and fees on loans	10,006		8,987		27,890		26,270		Interest and fees on loans	12,931		9,107		25,166		17,884
Interest and dividends on securities:	Interest and dividends on securities:									Interest and dividends on securities:
Taxable	Taxable	2,947		731		6,679		1,387		Taxable	3,688		2,276		7,274		3,732
Exempt from federal income taxes	Exempt from federal income taxes	1,551		1,760		4,867		5,331		Exempt from federal income taxes	989		1,639		2,197		3,316
Interest on federal funds sold and other short-term investments	Interest on federal funds sold and other short-term investments	2,249		241		3,423		515		Interest on federal funds sold and other short-term investments	2,100		958		5,213		1,174
Total interest income	Total interest income	16,753		11,719		42,859		33,503		Total interest income	19,708		13,980		39,850		26,106

Interest Expense:	Interest Expense:									Interest Expense:
Interest on deposits	Interest on deposits	782		287		1,344		915		Interest on deposits	3,651		339		6,822		562

Interest on short-term borrowings										Interest on short-term borrowings	43		—		116		—
Total interest expense	Total interest expense	782		287		1,344		915		Total interest expense	3,694		339		6,938		562
Net interest income	Net interest income	15,971		11,432		41,515		32,588		Net interest income	16,014		13,641		32,912		25,544
Provision for (release of) credit losses		550		340		850		(870)
Net interest income after provision for (release of) credit losses		15,421		11,092		40,665		33,458
(Release of) provision for credit losses										(Release of) provision for credit losses	(120)		70		(460)		300
Net interest income after (release of) provision for credit losses										Net interest income after (release of) provision for credit losses	16,134		13,571		33,372		25,244
Total net revenue	Total net revenue	47,205		38,669		133,530		114,197		Total net revenue	48,207		44,222		97,552		86,325

Operating Expense:	Operating Expense:									Operating Expense:
Personnel	Personnel	26,999		23,283		77,750		68,689		Personnel	29,432		26,033		59,458		50,751
Occupancy	Occupancy	970		953		2,801		2,859		Occupancy	907		916		1,762		1,831
Equipment	Equipment	1,633		1,700		5,004		5,028		Equipment	1,749		1,660		3,399		3,371
Amortization of intangible assets	Amortization of intangible assets	195		215		485		644		Amortization of intangible assets	195		155		390		290
Other operating expense	Other operating expense	6,524		4,539		15,748		11,798		Other operating expense	7,056		4,875		14,702		9,224
Total operating expense	Total operating expense	36,321		30,690		101,788		89,018		Total operating expense	39,339		33,639		79,711		65,467
Income before income tax expense	Income before income tax expense	10,884		7,979		31,742		25,179		Income before income tax expense	8,868		10,583		17,841		20,858
Income tax expense	Income tax expense	2,085		1,174		6,123		4,277		Income tax expense	1,730		2,021		3,586		4,038
Net income	Net income	$	8,799	$	6,805	$	25,619	$	20,902	Net income	$	7,138	$	8,562	$	14,255	$	16,820

Basic earnings per share	Basic earnings per share	$	.65	$	.48	$	1.89	$	1.47	Basic earnings per share	$	.53	$	.63	$	1.05	$	1.24
Diluted earnings per share	Diluted earnings per share	.64		.48		1.86		1.45		Diluted earnings per share	.52		.62		1.03		1.22

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in Thousands)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Comprehensive Income:	Comprehensive Income:									Comprehensive Income:
Net income	Net income	$	8,799	$	6,805	$	25,619	$	20,902	Net income	$	7,138	$	8,562	$	14,255	$	16,820
Other comprehensive (loss) income:
Net unrealized loss on securities available-for-sale		(26,127)		(4,438)		(87,159)		(7,086)
Other comprehensive income (loss):										Other comprehensive income (loss):
Net unrealized (loss) gain on securities available-for-sale										Net unrealized (loss) gain on securities available-for-sale	(5,627)		(23,538)		3,554		(61,037)
Tax effect	Tax effect	6,218		1,057		20,744		1,687		Tax effect	1,339		5,602		(846)		14,527
Reclassification adjustments for losses (gains) included in net income	Reclassification adjustments for losses (gains) included in net income	(13)		1		(15)		(44)		Reclassification adjustments for losses (gains) included in net income	199		(2)		160		(2)
Tax effect	Tax effect	3		—		3		10		Tax effect	(47)		—		(38)		—
Foreign currency translation adjustments	Foreign currency translation adjustments	(195)		(168)		(405)		(145)		Foreign currency translation adjustments	12		(209)		97		(210)
Total comprehensive (loss) income		$	(11,315)	$	3,257	$	(41,213)	$	15,324
Total comprehensive income (loss)										Total comprehensive income (loss)	$	3,014	$	(9,585)	$	17,182	$	(29,902)

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in Thousands)


		Nine Months Ended September 30,					Six Months Ended June 30,
		2022		2021			2023		2022
Cash Flows From Operating Activities:	Cash Flows From Operating Activities:					Cash Flows From Operating Activities:
Net income	Net income	$	25,619	$	20,902	Net income	$	14,255	$	16,820
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,311		9,340
Gains on sales of securities		(15)		(44)
Amortization of intangible assets						Amortization of intangible assets	390		290
Net amortization of premium/discount on investment securities						Net amortization of premium/discount on investment securities	2,287		3,321
Depreciation						Depreciation	2,028		2,036
Losses (gains) on sales of securities						Losses (gains) on sales of securities	160		(2)
Stock-based compensation expense	Stock-based compensation expense	4,479		2,585		Stock-based compensation expense	2,859		3,172
Provision for (release of) credit losses		850		(870)
Decrease in deferred income tax asset		—		22
Increase in current income tax liability		641		79
Decrease in pension liability		(1,877)		(1,252)
(Release of) provision for credit losses						(Release of) provision for credit losses	(460)		300

(Decrease) increase in current income tax liability						(Decrease) increase in current income tax liability	(1,036)		634
Increase (decrease) in pension liability						Increase (decrease) in pension liability	224		(1,274)
Increase in accounts receivable	Increase in accounts receivable	(2,540)		(628)		Increase in accounts receivable	(5,446)		(1,805)
Other operating activities, net	Other operating activities, net	5,331		546		Other operating activities, net	1,712		7,570
Net cash provided by operating activities	Net cash provided by operating activities	40,799		30,680		Net cash provided by operating activities	16,973		31,062

Cash Flows From Investing Activities:	Cash Flows From Investing Activities:					Cash Flows From Investing Activities:
Proceeds from sales of securities available-for-sale	Proceeds from sales of securities available-for-sale	3,838		43,190		Proceeds from sales of securities available-for-sale	111,053		1,521
Proceeds from maturities of securities available-for-sale	Proceeds from maturities of securities available-for-sale	45,740		83,265		Proceeds from maturities of securities available-for-sale	22,501		30,357
Purchase of securities available-for-sale	Purchase of securities available-for-sale	(231,891)		(322,336)		Purchase of securities available-for-sale	(15,332)		(162,853)
Net (increase) decrease in loans		(76,521)		19,229
Net decrease in loans						Net decrease in loans	27,058		1,092
Purchase of bank-owned life insurance	Purchase of bank-owned life insurance	(4,538)		(24,868)		Purchase of bank-owned life insurance	—		(4,259)
Asset acquisition of Touchpoint	Asset acquisition of Touchpoint	(4,425)		—		Asset acquisition of Touchpoint	—		(4,425)
Decrease (increase) in payments in advance of funding	Decrease (increase) in payments in advance of funding	22,206		(71,816)		Decrease (increase) in payments in advance of funding	24,595		(21,745)
Purchases of premises and equipment, net	Purchases of premises and equipment, net	(4,270)		(2,697)		Purchases of premises and equipment, net	(6,390)		(3,393)
Net cash used in investing activities		(249,861)		(276,033)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	163,485		(163,705)

Cash Flows From Financing Activities:	Cash Flows From Financing Activities:					Cash Flows From Financing Activities:
Net decrease in noninterest-bearing demand deposits		(911)		(26,184)
Net increase in interest-bearing demand and savings deposits		20,672		67,930
Net decrease in time deposits		(11,543)		(5,285)
Net change in accounts and drafts payable and other customer receivables		50,239		70,099
Net increase in noninterest-bearing demand deposits						Net increase in noninterest-bearing demand deposits	36,350		21,850
Net decrease in interest-bearing demand and savings deposits						Net decrease in interest-bearing demand and savings deposits	(122,399)		(48,982)
Net increase (decrease) in time deposits						Net increase (decrease) in time deposits	20,266		(4,796)
Net decrease (increase) in accounts and drafts receivable from customers						Net decrease (increase) in accounts and drafts receivable from customers	12,152		(24,139)

Net decrease in accounts and drafts payable						Net decrease in accounts and drafts payable	(46,076)		(51,526)
Cash dividends paid	Cash dividends paid	(11,478)		(11,576)		Cash dividends paid	(7,941)		(7,654)
Purchase of common shares for treasury	Purchase of common shares for treasury	(5,299)		(18,975)		Purchase of common shares for treasury	(2,377)		(5,299)
Other financing activities, net	Other financing activities, net	(552)		(875)		Other financing activities, net	(902)		(505)
Net cash provided by financing activities		41,128		75,134
Net decrease in cash and cash equivalents		(167,934)		(170,219)
Net cash used in financing activities						Net cash used in financing activities	(110,927)		(121,051)
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	69,531		(253,694)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	514,928		670,528		Cash and cash equivalents at beginning of period	200,942		514,928
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	346,994	$	500,309	Cash and cash equivalents at end of period	$	270,473	$	261,234

Supplemental information:	Supplemental information:					Supplemental information:
Cash paid for interest	Cash paid for interest	$	1,314	$	885	Cash paid for interest	$	6,697	$	549
Cash paid for income taxes	Cash paid for income taxes	5,531		4,176		Cash paid for income taxes	4,598		2,609

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

THREE MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023 AND ~~2021~~2022

(Unaudited)

(Dollars in Thousands except per share data)


		Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total			Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance, June 30, 2021		$	7,753	$	203,098	$	105,398	$	(53,437)	$	(2,045)	$	260,767
Balance, March 31, 2022														Balance, March 31, 2022	$	7,753	$	203,149	$	116,646	$	(82,348)	$	(28,122)	$	217,078
Net income	Net income					6,805						6,805		Net income					8,562						8,562
Cash dividends ($0.27 per share)						(3,815)						(3,815)
Issuance of 4,412 common shares pursuant to stock-based compensation plan, net				(51)				134				83
Cash dividends ($0.28 per share)														Cash dividends ($0.28 per share)					(3,822)						(3,822)
Issuance of 18,637 common shares pursuant to stock-based compensation plan, net														Issuance of 18,637 common shares pursuant to stock-based compensation plan, net			(749)				819				70

Stock-based compensation expense	Stock-based compensation expense			1,066								1,066		Stock-based compensation expense			2,082								2,082
Purchase of 314,672 common shares								(13,715)				(13,715)
Purchase of 5,500 common shares														Purchase of 5,500 common shares							(213)				(213)
Other comprehensive loss	Other comprehensive loss									(3,548)		(3,548)		Other comprehensive loss									(18,143)		(18,143)
Balance, September 30, 2021		$	7,753	$	204,113	$	108,388	$	(67,018)	$	(5,593)	$	247,643
Balance, June 30, 2022														Balance, June 30, 2022	$	7,753	$	204,482	$	121,386	$	(81,742)	$	(46,265)	$	205,614

Balance, June 30, 2022		$	7,753	$	204,482	$	121,386	$	(81,742)	$	(46,265)	$	205,614
Balance, March 31, 2023														Balance, March 31, 2023	$	7,753	$	206,614	$	134,822	$	(79,419)	$	(52,270)	$	217,500
Net income	Net income					8,799						8,799		Net income					7,138						7,138
Cash dividends ($0.28 per share)						(3,824)						(3,824)
Issuance of 3,487 common shares pursuant to stock-based compensation plan, net				(165)				118				(47)
Cash dividends ($0.29 per share)														Cash dividends ($0.29 per share)					(3,964)						(3,964)
Issuance of 19,687 common shares pursuant to stock-based compensation plan, net														Issuance of 19,687 common shares pursuant to stock-based compensation plan, net			(807)				871				64

Stock-based compensation expense	Stock-based compensation expense			1,307								1,307		Stock-based compensation expense			927				(18)				909

Purchase of 63,305 common shares														Purchase of 63,305 common shares							(2,377)				(2,377)
Other comprehensive loss	Other comprehensive loss									(20,114)		(20,114)		Other comprehensive loss									(4,124)		(4,124)
Balance, September 30, 2022		$	7,753	$	205,624	$	126,361	$	(81,624)	$	(66,379)	$	191,735
Balance, June 30, 2023														Balance, June 30, 2023	$	7,753	$	206,734	$	137,996	$	(80,943)	$	(56,394)	$	215,146

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023 AND ~~2021~~2022

(Unaudited)

(Dollars in Thousands except per share data)


		Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance, December 31, 2020		$	7,753	$	204,875	$	99,062	$	(50,515)	$	(15)	$	261,160
Net income						20,902						20,902
Cash dividends ($.81 per share)						(11,576)						(11,576)
Issuance of 83,506 common shares pursuant to stock-based compensation plan, net				(2,932)				2,180				(752)
Exercise of SARs				(415)				292				(123)
Stock-based compensation expense				2,585								2,585
Purchase of 434,938 common shares								(18,975)				(18,975)
Other comprehensive loss										(5,578)		(5,578)
Balance, September 30, 2021		$	7,753	$	204,113	$	108,388	$	(67,018)	$	(5,593)	$	247,643

															Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance, December 31, 2021	Balance, December 31, 2021	$	7,753	$	204,276	$	112,220	$	(78,904)	$	453	$	245,798	Balance, December 31, 2021	$	7,753	$	204,276	$	112,220	$	(78,904)	$	453	$	245,798
Net income	Net income					25,619						25,619		Net income					16,820						16,820
Cash dividends ($.84 per share)						(11,478)						(11,478)
Issuance of 80,396 common shares pursuant to stock-based compensation plan, net				(2,803)				2,336				(467)
Cash dividends ($.56 per share)														Cash dividends ($.56 per share)					(7,654)						(7,654)
Issuance of 76,909 common shares pursuant to stock-based compensation plan, net														Issuance of 76,909 common shares pursuant to stock-based compensation plan, net			(2,638)				2,218				(420)
Exercise of SARs	Exercise of SARs			(328)				243				(85)		Exercise of SARs			(328)				243				(85)
Stock-based compensation expense	Stock-based compensation expense			4,479								4,479		Stock-based compensation expense			3,172								3,172
Purchase of 130,374 common shares	Purchase of 130,374 common shares							(5,299)				(5,299)		Purchase of 130,374 common shares							(5,299)				(5,299)
Other comprehensive loss	Other comprehensive loss									(66,832)		(66,832)		Other comprehensive loss									(46,718)		(46,718)
Balance, September 30, 2022		$	7,753	$	205,624	$	126,361	$	(81,624)	$	(66,379)	$	191,735
Balance, June 30, 2022														Balance, June 30, 2022	$	7,753	$	204,482	$	121,386	$	(81,742)	$	(46,265)	$	205,614

Balance, December 31, 2022														Balance, December 31, 2022	$	7,753	$	207,422	$	131,682	$	(81,211)	$	(59,321)	$	206,325
Net income														Net income					14,255						14,255
Cash dividends ($.58 per share)														Cash dividends ($.58 per share)					(7,941)						(7,941)
Issuance of 81,221 common shares pursuant to stock-based compensation plan, net														Issuance of 81,221 common shares pursuant to stock-based compensation plan, net			(3,327)				2,541				(786)
Exercise of SARs														Exercise of SARs			(238)				122				(116)
Stock-based compensation expense														Stock-based compensation expense			2,877				(18)				2,859
Purchase of 63,305 common shares														Purchase of 63,305 common shares							(2,377)				(2,377)
Other comprehensive gain														Other comprehensive gain									2,927		2,927
Balance, June 30, 2023														Balance, June 30, 2023	$	7,753	$	206,734	$	137,996	$	(80,943)	$	(56,394)	$	215,146

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Certain amounts in prior-period financial statements have been reclassified to conform to the current period’s presentation. Such reclassifications have no effect on previously reported net income or shareholders’ equity. For further information, refer to the audited consolidated financial statements and related footnotes included in Cass Information System, Inc.’s (the “Company” or “Cass”) Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022 ("2022 Form 10-K").

Note 2 – Intangible Assets

The Company accounts for intangible assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, Goodwill and Other Intangible Assets, which requires that intangibles with indefinite useful lives be tested annually for impairment, or when management deems there is a triggering event, and those with finite useful lives be amortized over their useful lives.

In June 2022, the Company acquired the assets of mobile church management software developer Touchpoint, a division of the Pursuant Group, Inc., and recorded intangible assets of $5,289,000. Those intangible assets were valued at $3,046,000 for goodwill, $1,692,000 for the customer list, $368,000 for software, and $183,000 for the trade name. The goodwill is deductible for tax purposes over 15 years, starting in 2022. The intangible assets and results of Touchpoint are included in the Information Services operating segment.

The purchase price of the acquisition consisted of a cash payment of $4,900,000 and potential contingent consideration in the form of an earn out up to $2,500,000. The Company valued the contingent earn out component at $389,000. The fair value of the contingent consideration was estimated on the acquisition date as the present value of the expected future contingent payments which were determined using a Monte Carlo simulation. The contingent consideration is based upon four years of earnings before interest, taxes, depreciation and amortization (EBITDA) subsequent to the acquisition date. Any changes in the estimated fair value of the contingent earn out consideration, up to the contracted amount, will be reflected in the results of operations in future periods as they are identified.

Details of the Company’s intangible assets are as follows:


		September 30, 2022				December 31, 2021					June 30, 2023				December 31, 2022
(In thousands)	(In thousands)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		(In thousands)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Assets eligible for amortization:	Assets eligible for amortization:									Assets eligible for amortization:
Customer lists	Customer lists	$	6,470	$	(4,489)	$	4,778	$	(4,341)	Customer lists	$	6,470	$	(4,706)	$	6,470	$	(4,561)
Patents	Patents	72		(31)		72		(28)		Patents	72		(34)		72		(32)
Software	Software	3,212		(1,401)		2,844		(1,104)		Software	3,212		(1,721)		3,212		(1,508)
Trade name	Trade name	373		(35)		190		(22)		Trade name	373		(56)		373		(42)
Other	Other	500		(350)		500		(325)		Other	500		(375)		500		(358)
Unamortized intangible assets:	Unamortized intangible assets:									Unamortized intangible assets:
Goodwill	Goodwill	17,309		—		14,262		—		Goodwill	17,309		—		17,309		—
Total intangible assets	Total intangible assets	$	27,936	$	(6,306)	$	22,646	$	(5,820)	Total intangible assets	$	27,936	$	(6,892)	$	27,936	$	(6,501)

The customer lists are amortized over 7 to 10 years; the patents over 18 years; software over 3 to 7 ~~years,~~years; the trade name over 10 to 20 ~~years~~years; and other intangible assets over 15 years. Amortization of intangible assets amounted to $195,000 and ~~$215,000~~$155,000 for the three month periods ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Amortization of intangible assets amounted to ~~$485,000~~$390,000 and ~~$644,000~~$290,000 for the ~~nine-month~~six-month periods ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ respectively.

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Estimated annual amortization of intangibles is ~~$680,000 in 2022,~~ $780,000 in 2023, $738,000 in 2024, $730,000 in 2025, ~~and~~ $582,000 in ~~2026.~~2026, and $262,000 in 2027.

Note 3 – Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the sum of the weighted-average number of common shares outstanding and the weighted-average number of potential common shares outstanding. Under the treasury stock method, stock appreciation rights (“SARs”) are dilutive when the average market price of the Company’s common stock, combined with the effect of any unamortized compensation expense, exceeds the SAR price during a period.

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The calculations of basic and diluted earnings per share are as follows:


(In thousands except share and per share data)	(In thousands except share and per share data)	Three Months Ended September 30,				Nine Months Ended September 30,				(In thousands except share and per share data)	Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Basic	Basic									Basic
Net income	Net income	$	8,799	$	6,805	$	25,619	$	20,902	Net income	$	7,138	$	8,562	$	14,255	$	16,820
Weighted-average common shares outstanding	Weighted-average common shares outstanding	13,542,231		14,040,089		13,554,169		14,203,369		Weighted-average common shares outstanding	13,553,346		13,542,677		13,576,281		13,560,237
Basic earnings per share	Basic earnings per share	$	0.65	$	0.48	$	1.89	$	1.47	Basic earnings per share	$	0.53	$	0.63	$	1.05	$	1.24

Diluted	Diluted									Diluted
Net income	Net income	$	8,799	$	6,805	$	25,619	$	20,902	Net income	$	7,138	$	8,562	$	14,255	$	16,820
Weighted-average common shares outstanding	Weighted-average common shares outstanding	13,542,231		14,040,089		13,554,169		14,203,369		Weighted-average common shares outstanding	13,553,346		13,542,677		13,576,281		13,560,237
Effect of dilutive restricted stock and stock appreciation rights	Effect of dilutive restricted stock and stock appreciation rights	262,106		237,080		252,496		239,016		Effect of dilutive restricted stock and stock appreciation rights	300,696		258,864		282,412		247,611
Weighted-average common shares outstanding assuming dilution	Weighted-average common shares outstanding assuming dilution	13,804,337		14,277,169		13,806,665		14,442,385		Weighted-average common shares outstanding assuming dilution	13,854,042		13,801,541		13,858,693		13,807,848
Diluted earnings per share	Diluted earnings per share	$	0.64	$	0.48	$	1.86	$	1.45	Diluted earnings per share	$	0.52	$	0.62	$	1.03	$	1.22

Note 4 – Stock Repurchases

The Company maintains a treasury stock buyback program pursuant to which, in October 2021, the Board of Directors authorized the repurchase of up to 750,000 shares of the Company’s common stock with no expiration date. As of ~~September~~June 30, ~~2022, 340,707~~2023, 277,402 shares remained available for repurchase under the program. The Company repurchased 063,305 and ~~314,672~~5,500 shares during the three-month periods ended ~~September~~June 30, 2023 and 2022, and ~~2021,~~63,305 and 130,374 ~~and 434,938~~ shares during the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2022~~2023 and ~~2021, respectively.~~2022. Repurchases may be made in the open market or through negotiated transactions from time to time depending on market conditions.

Note 5 – Industry Segment Information

The services provided by the Company are classified into two reportable segments: Information Services and Banking Services. Each of these segments provides distinct services that are marketed through different channels. They are managed separately due to their unique service and processing requirements.

The Information Services segment provides transportation, energy, telecommunication, and environmental invoice processing and payment services to large ~~corporations as well as~~corporations. In addition, this segment provides church management software and on-line generosity services toprimarily for faith-based ministries. The Banking Services segment provides banking services primarily to privately held businesses, ~~restaurant franchises,~~franchise restaurants, and faith-based ministries, ~~and supports~~as well as supporting the banking needs of the Information Services segment.

The Company’s accounting policies for segments are the same as those described in the summary of significant accounting policies in the Company’s ~~Annual Report on~~2022 Form ~~10-K for the year ended December 31, 2021.~~10-K. Management evaluates segment performance based on ~~tax-equivalized (as defined in the footnote to the chart on the following table)~~ pre-tax income after allocations for corporate expenses. Transactions between segments are accounted for at what management believes to be fair value.

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Substantially all revenue originates from, and all long-lived assets are located within, the United States and no revenue from any customer of any segment exceeds 10% of the Company’s consolidated revenue.

Funding sources represent average balances and deposits generated by Information Services and Banking Services and there is no allocation methodology used. ~~Segment~~Banking Services interest income is ~~a function~~determined by actual interest income on loans minus actual interest expense paid on deposits plus/minus an allocation for interest income or expense dependent on the remaining available liquidity of the ~~relative share of average funding sources generated by each segment multiplied by the following rates:~~

•segment. Information Services ~~– one or more fixed rates depending upon the specific characteristics of the funding source,~~interest income is determined by multiplying available liquidity by actual yields on short-term investments and

•~~Banking Services – a variable rate that is based upon the overall performance of the Company’s earning assets.~~ investment securities.

Any difference between total segment interest income and overall total Company interest income is included in Corporate, Eliminations, and Other.

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Summarized information about the Company’s operations in each industry segment is as follows:

(In thousands) Information
Services Banking
Services Corporate,
Eliminations
and Other Total
Three Months Ended September 30, 2022:
Fee income $ 30,418 $ 811 $ 555 $ 31,784
Interest income* 7,158 8,733 1,273 17,164
Interest expense — 782 — 782
Intersegment income (expense) — 1,124 (1,124) —
Tax-equivalized pre-tax income* 5,605 4,126 1,565 11,296
Goodwill 17,173 136 — 17,309
Other intangible assets, net 4,321 — — 4,321
Total assets 1,196,399 1,598,519 (184,103) 2,610,815
Average funding sources 1,139,568 949,454 — 2,089,022
Three Months Ended September 30, 2021:
Fee income $ 26,174 $ 1,065 $ 338 $ 27,577
Interest income* 7,108 5,440 (361) 12,187
Interest expense — 287 — 287
Intersegment income (expense) — 859 (859) —
Tax-equivalized pre-tax income* 6,509 2,130 (193) 8,446
Goodwill 14,126 136 — 14,262
Other intangible assets, net 2,779 — — 2,779
Total assets 1,018,710 1,279,452 (5,176) 2,292,986
Average funding sources 974,091 875,997 — 1,850,088
Nine Months Ended September 30, 2022:
Fee income $ 89,329 $ 1,847 $ 1,689 $ 92,865
Interest income* 20,175 22,478 1,500 44,153
Interest expense — 1,344 — 1,344
Intersegment income (expense) — 3,549 (3,549) —
Tax-equivalized pre-tax income* 20,259 10,418 2,359 33,036
Goodwill 17,173 136 — 17,309
Other intangible assets, net 4,321 — — 4,321
Total assets 1,196,399 1,598,519 (184,103) 2,610,815
Average funding sources 1,082,449 963,588 — 2,046,037
Nine Months Ended September 30, 2021:
Fee income $ 77,863 $ 1,701 $ 1,175 $ 80,739
Interest income* 18,501 17,754 (1,335) 34,920
Interest expense — 915 — 915
Intersegment income (expense) — 2,170 (2,170) —
Tax-equivalized pre-tax income* 18,477 8,773 (654) 26,596
Goodwill 14,126 136 — 14,262
Other intangible assets, net 2,779 — — 2,779
Total assets 1,018,710 1,279,452 (5,176) 2,292,986
Average funding sources 906,474 862,142 — 1,768,616

* Presented on a tax-equivalent basis assuming a tax rate of 21% for both 2022 and 2021. The tax-equivalent adjustment was approximately $412,000 and $468,000 for the third quarter of 2022 and 2021, respectively and $1,294,000 and $1,417,000 for the nine months ended September 30, 2022 and 2021, respectively.


(In thousands)	Information Services		Banking Services		Corporate, Eliminations and Other		Total
Three Months Ended June 30, 2023:
Fee income	$	31,360	$	626	$	87	$	32,073
Interest income	9,463		13,829		(3,584)		19,708
Interest expense	69		7,340		(3,715)		3,694
Intersegment income (expense)	(1,062)		1,062		—		—
Tax-equivalized pre-tax income	5,873		2,776		219		8,868
Goodwill	17,173		136		—		17,309
Other intangible assets, net	3,735		—		—		3,735
Total assets	1,602,932		1,150,293		(282,429)		2,470,796
Average funding sources	1,327,251		784,068		—		2,111,319
Three Months Ended June 30, 2022:
Fee income	$	29,660	$	717	$	274	$	30,651
Interest income	5,778		9,336		(1,134)		13,980
Interest expense	34		328		(23)		339
Intersegment income (expense)	(910)		910		—		—
Tax-equivalized pre-tax income	5,980		5,441		(838)		10,583
Goodwill	17,173		136		—		17,309
Other intangible assets, net	4,516		—		—		4,516
Total assets	1,376,262		1,086,799		(19,073)		2,443,988
Average funding sources	1,390,567		974,681		—		2,365,248
Six Months Ended June 30, 2023:
Fee income	$	62,437	$	1,337	$	406	$	64,180
Interest income	18,910		27,006		(6,066)		39,850
Interest expense	167		12,773		(6,002)		6,938
Intersegment income (expense)	(1,976)		1,976		—		—
Tax-equivalized pre-tax income	10,864		6,635		342		17,841
Goodwill	17,173		136		—		17,309
Other intangible assets, net	3,735		—		—		3,735
Total assets	1,602,932		1,150,293		(282,429)		2,470,796
Average funding sources	1,342,061		833,207		—		2,175,268
Six Months Ended June 30, 2022:
Fee income	$	58,844	$	1,670	$	567	$	61,081
Interest income	10,128		18,189		(2,211)		26,106
Interest expense	40		553		(31)		562
Intersegment income (expense)	(1,674)		1,674		—		—
Tax-equivalized pre-tax income	11,870		10,602		(1,614)		20,858
Goodwill	17,173		136		—		17,309
Other intangible assets, net	4,516		—		—		4,516
Total assets	1,376,262		1,086,799		(19,073)		2,443,988
Average funding sources	1,339,769		970,772		—		2,310,541

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Note 6 – Loans by Type

A summary of loans is as follows:


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		(In thousands)	June 30, 2023		December 31, 2022
Commercial and industrial	Commercial and industrial	$	539,272	$	450,336	Commercial and industrial	$	534,128	$	561,616
Real estate:	Real estate:					Real estate:
Commercial:	Commercial:					Commercial:
Mortgage	Mortgage	98,088		108,759		Mortgage	115,335		108,166
Construction	Construction	26,284		24,797		Construction	20,330		17,874
Faith-based:	Faith-based:					Faith-based:
Mortgage	Mortgage	365,584		355,582		Mortgage	376,127		387,114
Construction	Construction	7,853		14,664		Construction	9,928		8,094
Paycheck Protection Program (“PPP”)		—		6,299
Other	Other	20		130		Other	—		42
Total loans	Total loans	$	1,037,101	$	960,567	Total loans	$	1,055,848	$	1,082,906

The following table presents the aging of loans past due by category at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


		Performing						Nonperforming							Performing						Nonperforming
(In thousands)	(In thousands)	Current		30-59 Days		60-89 Days		90 Days and Over		Non- accrual		Total Loans		(In thousands)	Current		30-59 Days		60-89 Days		90 Days and Over		Non- accrual		Total Loans
September 30, 2022
June 30, 2023														June 30, 2023
Commercial and industrial	Commercial and industrial	$	539,272	$	—	$	—	$	—	$	—	$	539,272	Commercial and industrial	$	534,128	$	—	$	—	$	—	$	—	$	534,128
Real estate	Real estate													Real estate
Commercial:	Commercial:													Commercial:
Mortgage	Mortgage	98,088		—		—		—		—		98,088		Mortgage	115,335		—		—		—		—		115,335
Construction	Construction	26,284		—		—		—		—		26,284		Construction	20,330		—		—		—		—		20,330
Faith-based:	Faith-based:													Faith-based:
Mortgage	Mortgage	365,584		—		—		—		—		365,584		Mortgage	376,127		—		—		—		—		376,127
Construction	Construction	7,853		—		—		—		—		7,853		Construction	9,928		—		—		—		—		9,928
PPP		—		—		—		—		—		—
Other		20		—		—		—		—		20

Total	Total	$	1,037,101	$	—	$	—	$	—	$	—	$	1,037,101	Total	$	1,055,848	$	—	$	—	$	—	$	—	$	1,055,848
December 31, 2021
December 31, 2022														December 31, 2022
Commercial and industrial	Commercial and industrial	$	450,336	$	—	$	—	$	—	$	—	$	450,336	Commercial and industrial	$	560,466	$	—	$	—	$	—	$	1,150	$	561,616
Real estate	Real estate													Real estate
Commercial:	Commercial:													Commercial:
Mortgage	Mortgage	108,759		—		—		—		—		108,759		Mortgage	108,166		—		—		—		—		108,166
Construction	Construction	24,797		—		—		—		—		24,797		Construction	17,874		—		—		—		—		17,874
Faith-based:	Faith-based:													Faith-based:
Mortgage	Mortgage	355,582		—		—		—		—		355,582		Mortgage	387,114		—		—		—		—		387,114
Construction	Construction	14,664		—		—		—		—		14,664		Construction	8,094		—		—		—		—		8,094
PPP		6,299		—		—		—		—		6,299

Other	Other	130		—		—		—		—		130		Other	42		—		—		—		—		42
Total	Total	$	960,567	$	—	$	—	$	—	$	—	$	960,567	Total	$	1,081,756	$	—	$	—	$	—	$	1,150	$	1,082,906

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The following table presents the credit exposure of the loan portfolio by internally assigned credit grade as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


(In thousands)	(In thousands)	Loans Subject to Normal Monitoring1		Performing Loans Subject to Special Monitoring2		Nonperforming Loans Subject to Special Monitoring2		Total Loans		(In thousands)	Loans Subject to Normal Monitoring1		Performing Loans Subject to Special Monitoring2		Nonperforming Loans Subject to Special Monitoring2		Total Loans
September 30, 2022
June 30, 2023										June 30, 2023
Commercial and industrial										Commercial and industrial	$	523,176	$	10,952	$	—	$	534,128
Real estate										Real estate
Commercial:										Commercial:
Mortgage										Mortgage	115,335		—		—		115,335
Construction										Construction	20,330		—		—		20,330
Faith-based:										Faith-based:
Mortgage										Mortgage	369,338		6,789		—		376,127
Construction										Construction	9,928		—		—		9,928

Total										Total	$	1,038,107	$	17,741	$	—	$	1,055,848
December 31, 2022										December 31, 2022
Commercial and industrial	Commercial and industrial	$	536,066	$	3,206	$	—	$	539,272	Commercial and industrial	$	549,241	$	11,225	$	1,150	$	561,616
Real estate	Real estate									Real estate
Commercial:	Commercial:									Commercial:
Mortgage	Mortgage	97,558		530		—		98,088		Mortgage	108,166		—		—		108,166
Construction	Construction	26,284		—		—		26,284		Construction	17,874		—		—		17,874
Faith-based:	Faith-based:									Faith-based:
Mortgage	Mortgage	364,627		957		—		365,584		Mortgage	386,169		945		—		387,114
Construction	Construction	7,853		—		—		7,853		Construction	8,094		—		—		8,094

Other	Other	20		—		—		20		Other	42		—		—		42
Total	Total	$	1,032,408	$	4,693	$	—	$	1,037,101	Total	$	1,069,586	$	12,170	$	1,150	$	1,082,906
December 31, 2021
Commercial and industrial		$	440,607	$	9,729	$	—	$	450,336
Real estate
Commercial:
Mortgage		108,759		—		—		108,759
Construction		24,797		—		—		24,797
Faith-based:
Mortgage		352,717		2,865		—		355,582
Construction		14,664		—		—		14,664
PPP		6,299		—		—		6,299
Other		130		—		—		130
Total		$	947,973	$	12,594	$	—	$	960,567


1 Loans subject to normal monitoring involve borrowers of acceptable-to-strong credit quality and risk, who have the apparent ability to satisfy their loan obligations.
2 Loans subject to special monitoring possess some credit deficiency or potential weakness which requires a high level of management attention.

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The Company adopted Accounting Standards Update ("ASU") 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02") effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty. In some cases, these modifications may result in new loans. Loan modifications to borrowers experiencing financial difficulty may be in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination thereof, among other things.

The following table shows the amortized cost of loans at June 30, 2023 that were both experiencing financial difficulty and modified during the six months ended June 30, 2023, segregated by category and type of modification.


(In thousands)	Payment Delay		Term Extension		Interest Rate Reduction		Combination Term Extension and Interest Rate Reduction		Percentage of Total Loans Held for Investment
June 30, 2023
Commercial and industrial	$	—	$	10,952	$	—	$	—	2.05	%









Total	$	—	$	10,952	$	—	$	—	1.04	%

There were two loans modified during the six months ended June 30, 2023. The terms were extended by periods of two and three years and there was not an interest rate reduction associated with the modifications.

The following table shows the performance of loans that have been modified to borrowers experiencing financial difficulty during the six months ended June 30, 2023.


(In thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due
June 30, 2023
Commercial and industrial	$	10,952	$	—	$	—	$	—	$	—









Total	$	10,952	$	—	$	—	$	—	$	—

There were no modified loans that had a payment default during the six months ended June 30, 2023 and that had been modified due to the borrower experiencing financial difficulty within the 12 previous months preceding the default.

Upon the Company's determination that a modified loan has subsequently been deemed uncollectible, the loan is written off. There were no loans written off during the six months ended June 30, 2023.

Prior to the adoption of ASU 2022-02, there were no loans considered troubled debt restructurings as of June 30, 2022 or December 31, 2022.

The Company had no loans evaluated for expected credit losses on an individual basis as of ~~September~~June 30, ~~2022 or~~2023. The Company had one loan that was considered an individually evaluated credit at December 31, ~~2021.~~2022, with no specific allowance. This

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loan was paid off in full in January 2023. There were no foreclosed loans recorded as other real estate owned as of ~~September~~June 30, ~~2022~~2023 or December 31, ~~2021. There were no loans considered troubled debt restructurings as of September 30, 2022 or December 31, 2021.~~

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2022.

A summary of the activity in the allowance for credit losses (“ACL”) by category for the ~~periods~~six month period ended ~~September~~June 30, ~~2022~~2023 and year-ended December 31, ~~2021~~2022 is as follows:

(In thousands) C&I CRE Faith-based
CRE Construction Total
Balance at December 31, 2020 $ 4,635 $ 1,175 $ 5,717 $ 417 $ 11,944
Provision for (release of) credit losses 387 (144) (48) (125) 70
Recoveries 12 — 15 — 27
Balance at December 31, 2021 $ 5,034 $ 1,031 $ 5,684 $ 292 $ 12,041
Provision for (release of) credit losses 919 (129) 259 (53) 996
Recoveries 12 — — — 12
Balance at September 30, 2022 $ 5,965 $ 902 $ 5,943 $ 239 $ 13,049

~~The provision for credit losses during the period ended September 30, 2022 was primarily driven by growth of the loan portfolio.~~


(In thousands)	C&I		CRE		Faith-based CRE		Construction		Total
Balance at December 31, 2021	$	5,034	$	1,031	$	5,684	$	292	$	12,041
Provision for (release of) credit losses	931		(91)		753		(108)		1,485
Recoveries	13		—		—		—		13
Balance at December 31, 2022	$	5,978	$	940	$	6,437	$	184	$	13,539

(Release of) provision for credit losses (1)	(282)		42		(130)		25		(345)
Recoveries	—		—		—		—		—
Balance at June 30, 2023	$	5,696	$	982	$	6,307	$	209	$	13,194


(1)			For the six month period ended June 30, 2023 and year-ended December 31, 2022, there was a release of credit losses of $115,000 and $135,000, respectively, for unfunded commitments.

Note 7 – Commitments and Contingencies

In the normal course of business, the Company is party to activities that contain credit, market and operational risks that are not reflected in whole or in part in the Company’s consolidated financial statements. ~~Such~~As more fully described in the Form 10-K, such activities include traditional off-balance sheet credit-related financial instruments and commitments under operating leases. These financial instruments include commitments to extend credit, commercial letters of credit and standby letters of credit. The Company’s maximum potential exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, commercial letters of credit and standby letters of credit is represented by the contractual amounts of those instruments. ~~An allowance for unfunded commitments of $222,000 and $367,000 had been recorded at September 30, 2022 and December 31, 2021, respectively.~~

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commercial and standby letters of credit are conditional commitments issued by the Company or its subsidiaries to guarantee the performance of a customer to a third party. These off-balance sheet financial instruments generally have fixed expiration dates or other termination clauses and may require payment of a fee. At September 30, 2022, the balances of unfunded commitments, standby and commercial letters of credit were $207,883,000, $13,450,000, and $1,633,000, respectively. Since some of the financial instruments may expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. Commitments to extend credit and letters of credit are subject to the same underwriting standards as those financial instruments included on the consolidated balance sheets. ~~The Company evaluates each customer’s~~An allowance for unfunded commitments of $117,000 and $232,000 had been recorded at June 30, 2023 and December 31, 2022, respectively.

At June 30, 2023, the balances of unfunded commitments, standby and commercial letters of credit ~~worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension~~were $198.2 million, $14.0 million, and $822,000, respectively. Since some of the ~~credit, is based on management’s credit evaluation of~~financial instruments may expire without being drawn upon, the borrower. Collateral held varies, but is generally accounts receivable, inventory, residential or income-producing commercial property or equipment. In the event of nonperformance, the Company or its subsidiaries may obtain and liquidate the collateral to recovertotal amounts ~~paid under guarantees on these financial instruments.~~do not necessarily represent future cash requirements.

Note 8 – Stock-Based Compensation

~~The~~Stock-based compensation awards have historically been issued under the Company's Amended and Restated Omnibus Stock and Performance Compensation Plan (the ~~“Omnibus Plan”~~"Prior Plan") ~~permits the issuance of up to 1,500,000 shares of the Company’s common stock~~, which was amended and last approved by shareholders in ~~the form of stock options, SARs, restricted stock, restricted stock units and performance awards.~~2013. The Company ~~may issue~~issued shares out of treasury stock for these ~~awards.~~awards until the expiration of the Prior Plan on April 17, 2023. During the ~~nine~~six months ended ~~September~~June 30, ~~2022, 62,375 restricted shares, 57,542 performance-based~~2023, 35,035 restricted shares and ~~no SARs~~48,262 performance-based restricted shares were granted under the Prior Plan.

On February 16, 2023, the Board of Directors adopted the 2023 Omnibus Stock and Performance Compensation Plan (the "2023 Omnibus Plan") to replace the Prior Plan, subject to shareholder approval which occurred on April 18, 2023. Subsequent to this date, the Company will issue stock-based compensation awards under the 2023 Omnibus Plan. During the six months ended June 30, 2023, 19,687 restricted shares and 3,191 performance-based restricted shares were granted under the 2023 Omnibus Plan.

Stock-based compensation expense for the three months ended ~~September~~June 30, 2023 and 2022 was $909,000 and ~~2021 was $1,307,000 and $1,066,000,~~$2.1 million, respectively, and ~~$4,479,000~~$2.9 million and ~~$2,585,000~~$3.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021, respectively.~~2022.

Restricted Stock

Restricted shares granted to Company employees are amortized to expense over a three-year cliff vesting period, or until vesting occurs upon retirement. Restricted shares granted to members of the Board of Directors are amortized to expense over a one-year service period, with the exception of those shares granted in lieu of cash payments for retainer fees which are expensed in the period earned.

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As of ~~September~~June 30, ~~2022,~~2023, the total unrecognized compensation expense related to non-vested restricted shares was ~~$2,239,000,~~$2.4 million, and the related weighted-average period over which it is expected to be recognized is approximately ~~0.74~~0.77 years.

Following is a summary of the activity of the Company's restricted stock for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, with total shares and weighted-average fair value:


		Nine Months Ended September 30, 2022				Six Months Ended June 30, 2023
		Shares	Fair Value			Shares	Fair Value
Balance at December 31, 2021		165,553	$	44.81
Balance at December 31, 2022					Balance at December 31, 2022	205,565	$	42.64
Granted	Granted	62,375	39.17		Granted	54,722	44.78
Vested	Vested	(23,316)	48.85		Vested	(21,691)	53.16
Forfeitures	Forfeitures	(823)	43.89		Forfeitures	(398)	40.15
Balance at September 30, 2022		203,789	$	42.63
Balance at June 30, 2023					Balance at June 30, 2023	238,198	$	42.18

Performance-Based Restricted Stock

The Company has granted three-year performance-based restricted stock (“PBRS”) awards which are contingent upon the Company’s achievement of pre-established financial goals over a three-year cliff vest period. The number of shares issued ranges from 0% to 150% of the target opportunity based on the actual achievement of financial goals for the three-year performance period.

Following is a summary of the activity of the PBRS for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, based on 100% of target value:


		Nine Months Ended September 30, 2022				Six Months Ended June 30, 2023
		Shares	Fair Value			Shares	Fair Value
Balance at December 31, 2021		116,543	$	46.79
Balance at December 31, 2022					Balance at December 31, 2022	138,785	$	43.19
Granted	Granted	57,542	39.58		Granted	51,453	48.19
Vested	Vested	(34,066)	49.05		Vested	(30,567)	54.02
Forfeitures	Forfeitures	(1,234)	43.89		Forfeitures	(598)	40.15
Balance at September 30, 2022		138,785	$	43.19
Balance at June 30, 2023					Balance at June 30, 2023	159,073	$	42.74

The PBRS that vested during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 were based on the Company's achievement of ~~52.9%~~86.7% of target financial goals, resulting in the issuance of ~~18,021~~26,499 shares of common stock. The outstanding PBRS at ~~September~~June 30, ~~2022~~2023 will vest at scheduled vesting dates and the actual number of shares of common stock issued will range from 0% to 150% of the target opportunity based on the actual achievement of financial goals for the respective three-year performance period.

SARs

There were no SARs granted and no expense recognized during the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. Following is a summary of the activity of the Company’s SARs program for the ~~nine~~six months ended ~~September~~June 30, ~~2022:~~2023:

Shares Weighted-
Average
Exercise
Price Average
Remaining
Contractual
Term Years
Aggregate
Intrinsic
Value
(In thousands)
Balance at December 31, 2021 117,089 $ 34.91 1.21 $ 741
Exercised (23,976) 27.78 — —
Exercisable at September 30, 2022 93,113 $ 36.75 0.65 $ 174


	Shares	Weighted- Average Exercise Price		Average Remaining Contractual Term Years	Aggregate Intrinsic Value (In thousands)
Balance at December 31, 2022	46,325	$	41.62	0.73	$	192
Exercised	(15,916)	31.92		—	—

Exercisable at June 30, 2023	30,409	$	46.70	0.59	$	—

~~There~~All SARs were ~~no non-vested SARs~~vested at ~~September~~June 30, ~~2022.~~2023.

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Note 9 – Defined Pension Plans

The Company has a noncontributory defined-benefit pension plan (the “Plan”), which covers eligible employees. Effective December 31, 2016, the Plan was closed to all new participants. Additionally, the Plan’s benefits were frozen for all remaining participants as of February 28, 2021. As such, subsequent to February 28, 2021, there is no service cost associated with the Plan. The Company accrues and makes contributions designed to fund normal service costs on a current basis using the projected unit credit with service proration method to amortize prior service costs arising from improvements in pension benefits and qualifying service prior to the establishment of the plan over a period of approximately 30 years. Disclosure information is based on a measurement date of December 31 of the corresponding year. The following table represents the components of ~~the~~ net periodic pension ~~costs:~~cost (benefit):


(In thousands)	(In thousands)	Estimated 2022		Actual 2021		(In thousands)	Estimated 2023		Actual 2022
Service cost – benefits earned during the year		$	—	$	1,002

Interest cost on projected benefit obligations	Interest cost on projected benefit obligations	3,290		3,076		Interest cost on projected benefit obligations	$	4,375	$	3,293
Expected return on plan assets	Expected return on plan assets	(5,860)		(6,310)		Expected return on plan assets	(3,977)		(5,857)
Net amortization		—		393
Net periodic pension benefit		$	(2,570)	$	(1,839)

Net periodic pension cost (benefit)						Net periodic pension cost (benefit)	$	398	$	(2,564)

The Company recorded a net periodic ~~benefit~~pension cost of ~~$616,000~~$138,000 and ~~$1,847,000~~$273,000 for the three and ~~nine-month periods~~six month period ended ~~September~~June 30, ~~2022,~~2023, respectively, and ~~$678,000~~a net periodic pension benefit of $613,000 and ~~$1,096,000~~$1.2 million for the three and ~~nine-month~~six month period ended ~~September 30, 2021, respectively. The net periodic pension benefit increased during the nine-month period ended September~~June 30, 2022, ~~primarily due to the Plan being frozen as of February 28, 2021.~~respectively. The Company made no contributions to the Plan during the ~~nine-month~~six month period ended ~~September~~June 30, ~~2022~~2023 and is evaluating the amount of contributions, if any, for the remainder of ~~2022.~~2023.

In addition to the above funded ~~benefit~~defined-benefit pension plan, the Company has an unfunded supplemental executive retirement plan ~~which covers key executives of~~(the "SERP"). There are no current employees earning benefits and therefore, there is no service cost associated with the Company. This is a noncontributory plan in which the Company and its subsidiaries make accruals designed to fund normal service costs on a current basis using the same method and criteria as its defined benefit plan.SERP. The following table represents the components of the net periodic ~~pension costs~~cost for ~~2021 and an estimate for 2022:~~the SERP:


(In thousands)	(In thousands)	Estimated 2022		Actual 2021		(In thousands)	Estimated 2023		Actual 2022
Service cost – benefits earned during the year		$	—	$	147

Interest cost on projected benefit obligation	Interest cost on projected benefit obligation	318		291		Interest cost on projected benefit obligation	$	472	$	318
Net amortization	Net amortization	108		203		Net amortization	—		108
Net periodic pension cost	Net periodic pension cost	$	426	$	641	Net periodic pension cost	$	472	$	426

~~Supplemental executive retirement plan costs~~SERP cost recorded to expense ~~were $107,000~~was $118,000 and ~~$320,000~~$236,000 for the three and ~~nine-month~~six month periods ended ~~September~~June 30, ~~2022,~~2023, respectively, and ~~$160,000~~$106,000 and ~~$481,000~~$213,000 for the three and ~~nine-month~~six month periods ended ~~September~~June 30, ~~2021,~~2022, respectively.

Note 10 – Income Taxes

The effective tax rate was ~~19.2%~~19.5% and ~~19.3%~~20.1% for the three and ~~nine-month~~six month periods ended ~~September~~June 30, ~~2022,~~2023, respectively, and ~~14.7%~~19.1% and ~~17.0%~~19.4% for the three and ~~nine-month~~six month periods ~~ended September~~June 30, ~~2021,~~2022, respectively. The effective tax rate for all periods differs from the statutory rate of 21% primarily due to the tax-exempt interest received from municipal bonds and bank-owned life insurance, among other factors. The increase in the effective tax rate for the ~~nine-month~~six month period ended ~~September~~June 30, ~~2022~~2023 as compared to the same period of ~~2021~~2022 is primarily a result of ~~taxable income being higher in the current period, which reduces the relative impact of the~~lower tax-exempt income.

Note 11 – Investment in Securities

Investment securities available-for-sale are recorded at fair value on a recurring basis. The Company’s investment securities available-for-sale are measured at fair value using Level 2 valuations. The market evaluation utilizes several sources which include “observable inputs” rather than “significant unobservable inputs” and therefore fall into the Level 2

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category. The amortized cost, gross unrealized gains, gross unrealized losses and fair value of investment securities are summarized as follows:


		September 30, 2022									June 30, 2023
(In thousands)	(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	State and political subdivisions	$	326,506	$	18	$	28,078	$	298,446	State and political subdivisions	$	243,231	$	1	$	19,799	$	223,433
Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	210,111		—		31,978		178,133		Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	196,521		—		32,669		163,852
Corporate bonds	Corporate bonds	96,405		—		12,614		83,791		Corporate bonds	111,231		—		10,068		101,163
U.S. treasury bonds		158,623		—		3,504		155,119
Treasury securities										Treasury securities	109,666		—		2,770		106,896
Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	50,136		—		1,836		48,300		Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	43,729		—		1,560		42,169
Total	Total	$	841,781	$	18	$	78,010	$	763,789	Total	$	704,378	$	1	$	66,866	$	637,513


		December 31, 2021									December 31, 2022
(In thousands)	(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	State and political subdivisions	$	359,187	$	12,931	$	990	$	371,128	State and political subdivisions	$	317,376	$	54	$	22,304	$	295,126
Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	170,711		135		2,200		168,646		Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	205,175		—		31,236		173,939
Corporate bonds	Corporate bonds	84,538		72		272		84,338		Corporate bonds	96,348		—		11,251		85,097
Treasury securities										Treasury securities	158,935		—		3,652		155,283
Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	49,835		—		494		49,341		Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	47,213		—		2,190		45,023
Total	Total	$	664,271	$	13,138	$	3,956	$	673,453	Total	$	825,047	$	54	$	70,633	$	754,468

The fair values of securities with unrealized losses are as follows:


		September 30, 2022													June 30, 2023
		Less than 12 months				12 months or more				Total					Less than 12 months				12 months or more				Total
(In thousands)	(In thousands)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		(In thousands)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
State and political subdivisions	State and political subdivisions	$	246,743	$	19,158	$	30,025	$	8,920	$	276,768	$	28,078	State and political subdivisions	$	104,329	$	1,171	$	118,103	$	18,628	$	222,432	$	19,799
Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	119,478		18,240		58,655		13,738		178,133		31,978		Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	11,581		608		152,271		32,061		163,852		32,669
Corporate bonds	Corporate bonds	72,280		11,075		6,511		1,539		78,791		12,614		Corporate bonds	14,846		155		81,318		9,913		96,164		10,068
U.S. treasury bonds		155,119		3,504		—		—		155,119		3,504
Treasury securities														Treasury securities	9,656		247		97,240		2,523		106,896		2,770
Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	48,300		1,836		—		—		48,300		1,836		Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	—		—		42,169		1,560		42,169		1,560
Total	Total	$	641,920	$	53,813	$	95,191	$	24,197	$	737,111	$	78,010	Total	$	140,412	$	2,181	$	491,101	$	64,685	$	631,513	$	66,866

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		December 31, 2021													December 31, 2022
		Less than 12 months				12 months or more				Total					Less than 12 months				12 months or more				Total
(In thousands)	(In thousands)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		(In thousands)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
State and political subdivisions	State and political subdivisions	$	60,083	$	990	$	—	$	—	$	60,083	$	990	State and political subdivisions	$	214,919	$	8,958	$	47,474	$	13,346	$	262,393	$	22,304
Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	163,652		2,200		—		—		163,652		2,200		Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	53,732		6,135		118,017		25,101		171,749		31,236
Corporate bonds	Corporate bonds	55,120		272		—		—		55,120		272		Corporate bonds	32,517		3,629		47,580		7,622		80,097		11,251
Treasury securities														Treasury securities	155,283		3,652		—		—		155,283		3,652
Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	49,341		494		—		—		49,341		494		Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	—		—		47,213		2,190		47,213		2,190
Total	Total	$	328,196	$	3,956	$	—	$	—	$	328,196	$	3,956	Total	$	456,451	$	22,374	$	260,284	$	48,259	$	716,735	$	70,633

There were ~~326~~280 securities, or ~~93% (44~~98.9% (183 of which for greater than 12 months), in an unrealized loss position as of ~~September~~June 30, ~~2022.~~2023. The unrealized losses at ~~September~~June 30, ~~2022~~2023 were primarily attributable to changes in market interest rates after the securities were purchased. The Company does not currently intend to sell and, based on current conditions, the Company does not believe it will be required to sell these available-for-sale securities before the recovery of the amortized cost basis, which may be the maturity dates of the securities. Therefore, the unrealized losses are recorded in accumulated other comprehensive loss. There were ~~101~~311 securities, or ~~28% (0~~91.7% (101 of which for greater than 12 months), in an unrealized loss position as of December 31, ~~2021.~~2022. At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had not recorded an allowance for credit losses on securities.

The amortized cost and fair value of investment securities by contractual maturity are shown in the following table. Expected maturities may differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.


		September 30, 2022					June 30, 2023
(In thousands)	(In thousands)	Amortized Cost		Fair Value		(In thousands)	Amortized Cost		Fair Value
Due in 1 year or less	Due in 1 year or less	$	65,238	$	64,875	Due in 1 year or less	$	114,522	$	111,901
Due after 1 year through 5 years	Due after 1 year through 5 years	267,021		260,368		Due after 1 year through 5 years	144,547		141,874
Due after 5 years through 10 years	Due after 5 years through 10 years	231,748		203,575		Due after 5 years through 10 years	205,751		179,827
Due after 10 years	Due after 10 years	277,774		234,971		Due after 10 years	239,558		203,911
Total	Total	$	841,781	$	763,789	Total	$	704,378	$	637,513

Proceeds from sales of investment securities classified as available-for-sale were ~~$2,317,000~~$49.6 million and ~~$3,838,000~~$111.1 million for the three and ~~nine~~six months ended ~~September~~June 30, 2023 and $1.5 million for both the three and six months ended June 30, 2022, respectively. Gross realized losses were $199,000 and ~~$30,074,000 and $43,190,000~~$347,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021, respectively.~~2023, respectively, and there were no gross realized losses for both the three and six months ended June 30, 2022. Gross realized gains were ~~$13,000~~$0 and ~~$15,000~~$187,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022. Gross realized losses~~2023, respectively, and were ~~$1,000~~$2,000 for both the three and six months ended ~~September~~June 30, ~~2021 while for the nine months ended September 30, 2021, there were gross realized gains of $44,000.~~2022. There were no securities pledged to secure public deposits or for other purposes at ~~September~~June 30, ~~2022.~~2023.

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Note 12 – Fair Value of Financial Instruments

Following is a summary of the carrying amounts and fair values of the Company’s financial instruments:


		September 30, 2022				December 31, 2021					June 30, 2023				December 31, 2022
(In thousands)	(In thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		(In thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Balance sheet assets:	Balance sheet assets:									Balance sheet assets:
Cash and cash equivalents	Cash and cash equivalents	$	346,994	$	346,994	$	514,928	$	514,928	Cash and cash equivalents	$	270,473	$	270,473	$	200,942	$	200,942
Investment securities	Investment securities	763,789		763,789		673,453		673,453		Investment securities	637,513		637,513		754,468		754,468
Loans, net	Loans, net	1,024,052		972,338		948,526		948,701		Loans, net	1,042,654		993,935		1,069,367		1,004,682
Accrued interest receivable	Accrued interest receivable	7,609		7,609		6,799		6,799		Accrued interest receivable	7,790		7,790		8,297		8,297
Total	Total	$	2,142,444	$	2,090,730	$	2,143,706	$	2,143,881	Total	$	1,958,430	$	1,909,711	$	2,033,074	$	1,968,389
Balance sheet liabilities:	Balance sheet liabilities:									Balance sheet liabilities:
Deposits	Deposits	$	1,229,721	$	1,229,721	$	1,221,503	$	1,221,503	Deposits	$	1,191,434	$	1,191,434	$	1,257,217	$	1,257,217
Accounts and drafts payable	Accounts and drafts payable	1,146,334		1,146,334		1,050,396		1,050,396		Accounts and drafts payable	1,021,524		1,021,524		1,067,600		1,067,600
Accrued interest payable	Accrued interest payable	46		46		16		16		Accrued interest payable	307		307		66		66
Total	Total	$	2,376,101	$	2,376,101	$	2,271,915	$	2,271,915	Total	$	2,213,265	$	2,213,265	$	2,324,883	$	2,324,883

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents - The carrying amount approximates fair value.

Investment in Securities - The fair value is measured on a recurring basis using Level 2 valuations. Refer to Note 11, “Investment in Securities,” for fair value and unrealized gains and losses by investment type.

Loans - The fair value is estimated using present values of future cash flows discounted at risk-adjusted interest rates for each loan category designated by management and is therefore a Level 3 valuation. Management believes that the risk factor embedded in the interest rates along with the allowance for credit losses result in a fair valuation.

Accrued Interest Receivable - The carrying amount approximates fair value.

Deposits - The fair value of demand deposits, savings deposits and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities and therefore, is a Level 2 valuation. The fair value estimates above do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market or the benefit derived from the customer relationship inherent in existing deposits.

Accounts and Drafts Payable - The carrying amount approximates fair value.

Accrued Interest Payable - The carrying amount approximates fair value.

Note 13 – Revenue from Contracts with Customers

Revenue is recognized as the obligation to the customer is satisfied. The following is detail of the Company’s revenue from contracts with clients.

Processing fees – The Company earns fees on a per-item or monthly basis for the invoice processing services rendered on behalf of customers. Per-item fees are recognized at the point in time when the performance obligation is satisfied. Monthly fees are earned over the course of a month, representing the period over which the performance obligation is satisfied. The contracts have no significant impact of variable consideration and no significant financing components.

Financial fees – The Company earns fees on a transaction level basis for invoice payment services when making customer payments. Fees are recognized at the point in time when the payment transactions are made, which is when the performance obligation is satisfied. The contracts have no significant impact of variable consideration and no significant financing components.

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Bank service fees – Revenue from service fees consists of service charges and fees on deposit accounts under depository agreements with customers to provide access to deposited funds. Service charges on deposit accounts are transaction-based fees that are recognized at the point in time when the performance obligation is satisfied. Service charges are recognized on a monthly basis representing the period over which the performance obligation is satisfied. The contracts have no significant impact of variable consideration and no significant financing components.


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022		2023		2022
Fee revenue and other income	Fee revenue and other income									Fee revenue and other income
In-scope of FASB ASC 606	In-scope of FASB ASC 606									In-scope of FASB ASC 606
Processing fees	Processing fees	$	18,964	$	18,461	$	57,184	$	55,882	Processing fees	$	19,386	$	19,184	$	38,899	$	38,220
Financial fees	Financial fees	11,252		8,624		32,406		23,122		Financial fees	11,662		10,623		22,921		21,155
Information services payment and processing revenue	Information services payment and processing revenue	30,216		27,085		89,590		79,004		Information services payment and processing revenue	31,048		29,807		61,820		59,375
Bank service fees	Bank service fees	289		323		1,142		991		Bank service fees	253		423		517		852
Fee revenue (in-scope of FASB ASC 606)	Fee revenue (in-scope of FASB ASC 606)	30,505		27,408		90,732		79,995		Fee revenue (in-scope of FASB ASC 606)	31,301		30,230		62,337		60,227
Other income (out-of-scope of FASB ASC 606)	Other income (out-of-scope of FASB ASC 606)	1,279		169		2,133		744		Other income (out-of-scope of FASB ASC 606)	772		421		1,843		854
Total fee revenue and other income	Total fee revenue and other income	$	31,784	$	27,577	$	92,865	$	80,739	Total fee revenue and other income	$	32,073	$	30,651	$	64,180	$	61,081

Note 14 – Leases

The Company leases certain premises under operating leases. As of ~~September~~June 30, ~~2022,~~2023, the Company had lease liabilities of ~~$9,759,000~~$9.0 million and right-of-use assets of ~~$9,435,000.~~$8.6 million. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. Presented within occupancy expense on the Consolidated Statements of Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, operating lease cost was ~~$386,000~~$345,000 and ~~$1,184,000,~~$702,000, respectively, short-term lease cost was ~~$51,000~~$73,000 and ~~$156,000,~~$126,000, respectively, and there was no variable lease cost. At ~~September~~June 30, ~~2022,~~2023, the weighted-average remaining lease term for the operating leases was ~~8.4~~7.8 years and the weighted-average discount rate used in the measurement of operating lease liabilities was ~~3.59%~~3.58%. Certain of the Company’s leases contain options to renew the lease; however, these renewal options are not included in the calculation of the lease liabilities as they are not reasonably certain to be exercised. See the Company’s ~~2021 Annual Report on~~2022 Form 10-K for information regarding these commitments.

A maturity analysis of operating lease liabilities and undiscounted cash flows as of ~~September~~June 30, ~~2022~~2023 is as follows:


(In thousands)	~~September~~June 30, ~~2022~~2023
Lease payments due
Less than 1 year	$	~~1,359~~1,337
1-2 years	~~1,332~~1,333
2-3 years	~~1,339~~1,359
3-4 years	~~1,354~~1,343
4-5 years	~~1,350~~1,370
Over 5 years	~~4,561~~3,531
Total undiscounted cash flows	~~11,295~~10,273
Discount on cash flows	~~1,536~~1,280
Total lease liability	$	~~9,759~~8,993

There were no sale and leaseback transactions, leveraged leases, or lease transactions with related parties during the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~

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Note 15 – Subsequent Events

In accordance with FASB ASC 855, Subsequent Events, the Company has evaluated subsequent events after the consolidated balance sheet date of ~~September~~June 30, ~~2022.~~2023. There were no events identified that would require additional disclosures to prevent the Company’s unaudited consolidated financial statements from being misleading.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Cass Information Systems, Inc. ("Cass" or the "Company") provides payment and information processing services to large manufacturing, distribution and retail enterprises ~~from its offices/locations in St. Louis, Missouri, Columbus, Ohio, Greenville, South Carolina, Wellington, Kansas, Jacksonville, Florida, Breda, Netherlands, Basingstoke,~~across the United ~~Kingdom, and Singapore.~~States. The Company’s services include freight invoice rating, payment processing, auditing, and the generation of accounting and transportation information. Cass also processes and pays ~~energy~~facility-related invoices, which include electricity and gas as well as waste and telecommunications expenses, and is a provider of telecom expense management solutions. Cass solutions include integrated payments, a B2B payment platform for clients that require an agile fintech partner. Additionally, the Company offers a church management software solution and an on-line platform to provide generosity services for faith-based and non-profit organizations. The Company’s bank subsidiary, ~~the “Bank,”~~Cass Commercial Bank (the “Bank”), supports the Company’s payment operations. The Bank also provides banking services to its target markets, which include ~~privately-owned~~privately held businesses ~~and faith-based ministries~~ in the St. Louis metropolitan area ~~as well as other selected cities in~~and restaurant franchises and faith-based ministries within the United States.

The specific payment and information processing services provided to each customer are developed individually to meet each customer’s requirements, which can vary greatly. In addition, the degree of automation such as electronic data interchange, imaging, work flow, and web-based solutions varies greatly among customers and industries. These factors combine so that pricing varies greatly among the customer base. In general, ~~however,~~ Cass is compensated for its information processing services through service fees, transactional level payment services, and investment of account balances generated during the payment process. The amount, type, and calculation of service fees vary greatly by service offering, but generally follow the volume of transactions processed. The Company also earns financial fees on a transaction level basis for invoice payment services when making customer payments. Financial fees include interchange revenue, foreign exchange fees and fees received through early payment of invoices. Fees are recognized at the point in time when the payment transactions are made, which is when the performance obligation is satisfied. Interest income from the balances generated during the payment processing cycle is affected by the amount of time Cass holds the funds prior to payment and the dollar volume processed. Both the number of transactions processed and the dollar volume processed are therefore key metrics followed by management. ~~Other~~The Bank earns most of its revenue from net interest income.

Various factors will ~~also~~ influence the Company’s revenue and profitability, such as changes in the general level of interest rates, which ~~have~~has a significant effect on net interest income. The funds generated by these processing activities are invested in overnight investments, investment grade securities, advances to payees, and loans generated by the Bank. The Bank earns most of its revenue from net interest income, or the difference between the interest earned on its loans and investments and the interest paid on its deposits and other borrowings. The Bank also assesses fees on other servicesincome; industry-wide factors, such as ~~cash management services.~~

~~Industry-wide factors that impact the Company include~~ the willingness of large corporations to outsource key business functions, such as freight, energy, telecommunication and environmental payment and audit. The benefits that can be achieved by outsourcing transaction processing, and the management information generated by Cass’ systems can be influenced by factors such as the competitive pressures within industries to improve profitability, the general level of transportation costs, deregulation of energy costs, and consolidation of telecommunication ~~providers. Economic~~providers; and economic factors that ~~impact the Company~~ include the general level of economic activity, ~~that can affect the volume and size of invoices processed,~~ the ability to hire and retain qualified staff, and the growth and quality of the Bank’s loan portfolio. ~~The general~~For a more detailed discussion of the Company’s revenue drivers and factors that impact the Company’s results of operation and financial condition generally, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2022 Form 10-K.

Recent Industry Developments

During the first and into the second quarter of 2023, the banking industry experienced significant volatility with high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, overall level of deposit cost, unrealized securities losses and eroding consumer confidence in the banking system. The Company's average deposits have declined $167.6 million, or 13.6%, from the second quarter of 2022 to the second quarter of 2023, primarily as a result of larger commercial depository clients moving their funds to higher interest ~~rates also has a significant effect on the revenue~~rate alternatives outside of the Company. ~~As discussed in greater detail in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” in~~

During the ~~Company’s 2021 Annual Report on Form 10-K,~~first half of 2023, the transportation industry has seen a decline in both fuel costs and overall freight rates. Primarily as a result, the ~~general level~~Company's average accounts and drafts payable has declined $86.2 million, or 7.6%, from the second quarter of 2022 to the second quarter of 2023. Transportation dollar volumes are key to the Company’s revenue as higher volumes generally lead to an increase in payment float, which generates interest income, as well as an increase in payments in advance of funding, which generates financial fees.

Despite the decline in average deposits and average accounts and drafts payable, the Company’s liquidity position and balance sheet remains strong. The Company has experienced recent stabilization in its deposit balances as a result of an increase in deposit rates ~~can have~~and increased depositor confidence across the banking industry. Average deposits increased $7.3 million in June 2023 as compared to May 2023. Despite the decrease in average funding sources, the Company maintained average short-term investments of $185.2 million during the second quarter of 2023. In addition, all of the Company's investment securities are classified as available-for-sale and there were no outstanding borrowings at June 30, 2023.

As a ~~negative impact on~~result of rising inflation, the Federal Reserve increased the Federal Funds rate over the course of 2022 and into the first six months of 2023. The increase in the Federal Funds rate has contributed to the increase in the Company's net interest ~~income and conversely, a rise in the general level of interest rates can have a positive impact on~~margin, therefore positively impacting net interest income. ~~The cost~~Inflation has also had the impact of fuel is another factor that has a significant impact on the transportation sector. As the price of fuel goes up or down, the Company’s earnings increase or decrease with the dollar amount of transportation invoices.

~~Currently, management views Cass’ major opportunity~~increasing operating expenses, such as the continued expansion of its payment and information processing service offerings and customer base. Management intends to accomplish this by maintaining the Company’s leadership position in applied technology, which when combined with the security and processing controls of the Bank, makes Cass unique in the industry.compensation expense.

Critical Accounting Policies

The Company has prepared the consolidated financial statements in this report in accordance with the Financial Accounting Standards Board Accounting Standards Codification. In preparing the consolidated financial statements, management

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makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting

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period. These estimates have been generally accurate in the past, have been consistent and have not required any material changes. There can be no assurances that actual results will not differ from those estimates. The accounting policy that requires significant management estimates and is deemed critical to the Company’s results of operations or financial position has been discussed with the Audit and Risk Committee of the Board of Directors and is described below.

Allowance for Credit Losses. The Company performs periodic and systematic detailed reviews of its loan portfolio to determine management’s estimate of the lifetime expected credit losses. Although these estimates are based on established methodologies for determining allowance requirements, actual results can differ significantly from estimated results. These policies affect both segments of the Company. The impact and associated risks related to these policies on the Company’s business operations are discussed in the “Provision and Allowance for Credit Losses and Allowance for Unfunded Commitments” section of this report.

Results of Operations

The following paragraphs more fully discuss the results of operations and changes in financial condition for the ~~three-month~~three month period ended ~~September~~June 30, ~~2022~~2023 (“~~Third Quarter~~second quarter of ~~2022”~~2023”) compared to the ~~three-month~~three month period ended ~~September~~June 30, ~~2021~~2022 (“~~Third Quarter~~second quarter of ~~2021”~~2022”) and the ~~nine-month~~six month period ended ~~September~~June 30, ~~2022 (“Nine Months Ended 2022”~~2023 ("first half of 2023") compared to the ~~nine-month~~six month period ended ~~September~~June 30, ~~2021 (“Nine Months Ended 2021”~~2022 ("first half of 2022")~~.The~~. The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes and with the statistical information and financial data appearing in this report, as well as in the Company’s ~~2021 Annual Report on~~2022 Form 10-K. Results of operations for the ~~Third Quarter~~second quarter of ~~2022~~2023 and first half of 2023 are not necessarily indicative of the results to be attained for any other period.

~~Net Income~~Summary of Results

The following table summarizes the Company’s operating results:


(In thousands except per share data)	(In thousands except per share data)	Third Quarter of								Nine Months Ended								(In thousands except per share data)	Second Quarter of								First Half of
		2022			2021			% Change		2022			2021			% Change			2023			2022			% Change		2023			2022			% Change
Processing fees																		Processing fees	$	19,386		$	19,184		1.1	%	$	38,899		$	38,220		1.8	%
Financial fees																		Financial fees	11,662			10,623			9.8	%	22,921			21,155			8.3	%
Net interest income																		Net interest income	16,014			13,641			17.4	%	32,912			25,544			28.8	%
(Release of) provision for credit loss																		(Release of) provision for credit loss	(120)			70			(271.4)	%	(460)			300			(253.3)	%
Other																		Other	1,025			844			21.4	%	2,360			1,706			38.3	%
Total revenues																		Total revenues	48,207			44,222			9.0	%	97,552			86,325			13.0	%
Operating expense																		Operating expense	39,339			33,639			16.9	%	79,711			65,467			21.8	%
Income before income tax expense																		Income before income tax expense	8,868			10,583			(16.2)	%	17,841			20,858			(14.5)	%
Income tax expense																		Income tax expense	1,730			2,021			(14.4)	%	3,586			4,038			(11.2)	%
Net income	Net income	$	8,799		$	6,805		29.3	%	$	25,619		$	20,902		22.6	%	Net income	$	7,138		$	8,562		(16.6)	%	$	14,255		$	16,820		(15.2)	%
Diluted earnings per share	Diluted earnings per share	$	.64		$	.48		33.3	%	1.86			1.45			28.3	%	Diluted earnings per share	$	0.52		$	0.62		(16.1)	%	$	1.03		$	1.22		(15.6)	%
Return on average assets	Return on average assets	1.33		%	1.14		%	—		1.32		%	1.23		%	—	%	Return on average assets	1.21		%	1.31		%	—		1.18		%	1.32		%	—
Return on average equity	Return on average equity	16.84		%	10.61		%	—		15.80		%	10.84		%	—	%	Return on average equity	13.37		%	16.53		%	—		13.56		%	15.30		%	—

~~Key profitability metrics were up~~Second quarter of 2023 compared to second quarter of 2022:

The Company recorded revenue of $48.2 million during the three ~~and nine~~ months ended ~~September~~June 30, 2023, up 9.0% from the three months ended June 30, 2022, primarily driven by ~~significant revenue growth in financial fees and~~rising interest rates which positively impacted net interest ~~income. Partially offsetting the revenue growth was~~income and financial fees. Operating expense increased 16.9% primarily driven by an increase in ~~operating~~full-time equivalent employees and

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other expenses ~~as more fully described below.~~related to strategic investments in technology initiatives. Net income was $7.1 million and diluted EPS was $0.52 per share, decreases of 16.6% and 16.1% from the three months ended June 30, 2022, respectively.

The Company posted a 1.21% return on average assets and 13.37% return on average equity.

First half of 2023 compared to first half of 2022:

The Company recorded revenue of $97.6 million during the first half of 2023, up 13.0% from the first half of 2022. Operating expense increased 21.8%. Net income was $14.3 million and diluted EPS was $1.03 per share, decreases of 15.2% and 15.6% from the six months ended June 30, 2022, respectively.

The Company posted a 1.18% return on average assets and 13.56% return on average equity.

Fee Revenue and Other Income

The Company’s fee revenue is derived mainly from transportation and facility processing and financial fees. As the Company provides its processing and payment services, it is compensated by service fees which are typically calculated on a per-item basis, discounts received for services provided to carriers and by the accounts and drafts payable balances generated in the payment process which can be used to

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generate interest income. ~~In addition, the Company's fee revenue consists of financial fees which are generated through the payment process.~~ Processing volumes, average payments in advance of funding, and fee revenue were as follows:


(In thousands)	(In thousands)	Third Quarter of						Nine Months Ended						(In thousands)	Second Quarter of						First Half of
		2022		2021		% Change		2022		2021		% Change			2023		2022		% Change			2023		2022		% Change
Transportation invoice volume	Transportation invoice volume	9,385		9,333		0.6	%	27,633		27,581		0.2	%	Transportation invoice volume	9,193		9,289		(1.0)	%		18,291		18,247		0.2	%
Transportation invoice dollar volume	Transportation invoice dollar volume	$	11,549,980	$	9,540,408	21.1	%	$	33,818,573	$	26,385,936	28.2	%	Transportation invoice dollar volume	$	9,711,801	$	11,413,414	(14.9)	%		$	19,980,252	$	22,268,594	(10.3)	%
Facility-related transaction volume 1		3,315		3,104		6.8	%	9,794		9,351		4.7	%
Facility-related transaction volume 1 2														Facility-related transaction volume 1 2	3,467		3,186		8.8	%		6,935		6,479		7.0	%
Facility-related dollar volume 2	Facility-related dollar volume 2	$	5,485,783	$	4,215,044	30.1	%	$	14,699,903	$	11,590,437	26.8	%	Facility-related dollar volume 2	$	4,578,490	$	4,570,178	0.2	%		$	9,891,875	$	9,214,120	7.4	%
Average payments in advance of funding	Average payments in advance of funding	$	277,683	$	213,922	29.8	%	$	283,431	$	196,492	44.2	%	Average payments in advance of funding	$	254,869	$	293,150	(13.1)	%		$	247,918	$	286,352	(13.4)	%
Processing fees	Processing fees	$	18,964	$	18,461	2.7	%	$	57,184	$	55,882	2.3	%	Processing fees	$	19,386	$	19,184	1.1	%		$	38,899	$	38,220	1.8	%
Financial fees	Financial fees	$	11,252	$	8,624	30.5	%	$	32,406	$	23,122	40.2	%	Financial fees	$	11,662	$	10,623	9.8	%		$	22,921	$	21,155	8.3	%
Other fees														Other fees	$	1,025	$	844	21.4	%		$	2,360	$	1,706	38.3	%

1.Facility expense transaction volumes have been restated for the ~~current and~~ prior ~~periods~~period to reflect total invoices processed. ~~In prior periods,~~Previously, billing account numbers were utilized for the telecom division as a proxy for transactions.

2.Includes energy, telecom and environmental.

~~Third Quarter~~Second quarter of ~~2022~~2023 compared to ~~Third Quarter~~second quarter of ~~2021:~~2022:

~~Processing~~Financial fee revenue increased ~~$503,000,~~$1.0 million, or ~~2.7%~~9.8%, primarily attributable to the increase in short-term interest rates, partially offset by a decline in transportation ~~and~~dollar volumes of 14.9%.

Processing fee revenue increased $202,000, or 1.1%, primarily attributable to the increase in facility-related transaction volumes of ~~0.6% and 6.8%, respectively.~~8.8%.

First half of 2023 compared to first half of 2022:

Financial fee revenue increased ~~$2,628,000,~~$1.8 million, or ~~30.5%~~8.3%, primarily attributable to the ~~21.1% and 30.1% increases~~increase in short-term interest rates, partially offset by a decline in transportation ~~and facility-related~~ dollar volumes ~~respectively. The increase in dollar volumes contributed to a 29.8% increase in average payments in advance~~ of funding, which is a significant driver of financial fee revenue. The significant increase in transportation invoice dollar volume was driven by inflationary pressures, supply chain disruptions and fuel surcharges, among other factors. Facility-related invoices increased 6.8%, while dollar volume increased 30.1%10.3%. ~~The increase in facility-related dollar volume was largely due to an increase in energy prices.~~

~~Nine Months Ended September 30, 2022 compared to Nine Months Ended September 30, 2021:~~

Processing fee revenue increased ~~$1,302,000,~~$679,000, or ~~2.3%~~1.8%, primarily attributable to the increase in transportation and facility-related transaction volumes of 0.2% and ~~4.7%~~7.0%, respectively.

Financial fee revenue increased $9,284,000, or 40.2%, primarily attributable to the 28.2% and 26.8% increases in transportation and facility-related dollar volumes, respectively. The increase in dollar volumes contributed to a 44.2% increase in average payments in advance of funding.

~~-25-~~-24-

Table of Contents

Net Interest Income

Net interest income is the difference between interest earned on loans, investments, and other earning assets and interest expense on deposits and other interest-bearing liabilities. Net interest income is a significant source of the Company’s revenues. The following table summarizes the changes in tax-equivalent net interest income and related factors:


(In thousands)	(In thousands)	Third Quarter of								Nine Months Ended								(In thousands)	Second Quarter of								First Half of
		2022			2021			% Change		2022			2021			% Change			2023			2022			% Change			2023			2022			% Change
Average earnings assets	Average earnings assets	$	2,243,219		$	2,036,296		10.2	%	$	2,196,704		$	1,965,976		11.7	%	Average earnings assets	$	2,010,771		$	2,222,653		(9.5)	%		$	2,086,332		$	2,173,060		(4.0)	%
Average interest-bearing liabilities	Average interest-bearing liabilities	597,469			600,263			(0.5)	%	598,812			583,478			2.6	%	Average interest-bearing liabilities	512,519			605,861			(15.4)	%		554,494			599,494			(7.5)	%
Net interest income*	Net interest income*	16,383			11,900			37.7	%	42,809			34,005			25.9	%	Net interest income*	16,277			14,077			15.6	%		33,496			26,426			26.8	%
Net interest margin*	Net interest margin*	2.90		%	2.32		%			2.61		%	2.31		%			Net interest margin*	3.25		%	2.54		%				3.24		%	2.45		%
Yield on earning assets*	Yield on earning assets*	3.04		%	2.37		%			2.69		%	2.37		%			Yield on earning assets*	3.98		%	2.60		%				3.91		%	2.50		%
Rate on interest-bearing liabilities		0.52		%	0.19		%			0.30		%	0.21		%
Cost of interest-bearing liabilities																		Cost of interest-bearing liabilities	2.89		%	0.22		%				2.52		%	0.19		%

*Presented on a tax-equivalent basis assuming a tax rate of 21% for both ~~2022~~2023 and ~~2021.~~2022.

~~Third Quarter~~Second quarter of ~~2022~~2023 compared to ~~Third Quarter~~second quarter of ~~2021:~~2022:

~~Average earning assets increased $206,923,000, or 10.2%.~~ The ~~overall~~ increase in ~~average interest-earning asset balances was~~net interest income is primarily due to ~~increases~~an increase in ~~average investments~~the Federal Funds rate throughout 2022 and ~~loans,~~into the first half of 2023, positively affecting the net interest margin which increased to 3.25% as compared to 2.54% in the prior year. This was partially offset by athe decrease of average earning assets by $211.9 million, or 9.5%. The yield on interest-earning assets increased 138 basis points from 2.60% to 3.98% while the cost of interest-bearing liabilities increased 267 basis points from 0.22% to 2.89%.

Average loans increased $102.0 million, or 10.5%, to $1.1 billion. This increase was due to loan growth during the second half of 2022, specifically in the Company's franchise restaurants, faith-based, and lease financing receivables portfolios. The average yield on loans increased 107 basis points to 4.82% primarily due to the increase in short-term ~~investments.~~interest rates.

Average investment securities ~~increased $309,866,000,~~decreased $48.2 million, or ~~59.9%~~6.0%, ~~as cash provided by increases in funding sources was utilized~~due to ~~purchase~~the sale and maturity of investment ~~securities.~~securities throughout the first half of 2023. The average yield on taxable investment securities increased 7385 basis points to ~~2.11%~~2.63% as a result of the increase in short and long-term interest rates. The average yield on tax-exempt investment securities declined ~~two~~25 basis points to ~~2.85%~~2.68%. These securities are longer term fixed rate and ~~do not reprice as quickly in a rising interest rate environment. The~~the Company has not purchased ~~tax-exempt investment~~any such securities ~~during the first nine months of 2022.~~since interest rates began increasing.

Average short-term investments, consisting of interest-bearing deposits in other financial institutions and federal funds sold, decreased $265.7 million, or 58.9%. The decrease is primarily a result of the increase in the average balances of loans, ~~increased $111,034,000 as organic growth in franchise, faith-based and other commercial and industrial loans more than offset a $36,254,000 reduction~~coupled with the decrease in average ~~PPP loans. The average yield on loans declined 5 basis points to 4.03% primarily due to a $812,000 decrease in PPP loan fees,~~funding sources, partially offset by ~~the increase~~a decrease in ~~short-term interest rates that began in March 2022 and continued through September 2022. Excluding the impact of the PPP loan fees, the~~ average ~~yield on loans increased 32 basis points.~~

~~The average balance of short-term investments decreased $213,977,000, or 33.1%, as available funds were deployed into~~ investment ~~securities and loans.~~securities. The average yield on short-term investments increased ~~192~~370 basis points to ~~2.07%~~4.55% primarily due to the increase in short-term interest rates that began in March 2022. The vast majority of these short-term investments are held at the Federal Reserve Bank.

The average balance of interest-bearing deposits decreased ~~$2,795,000,~~$96.5 million, or ~~0.5% due~~15.9%. Average demand deposits decreased $71.2 million, or 11.4%. The Company has experienced deposit attrition as larger commercial depository clients moved their funds to ~~a decrease in average time deposits.~~higher interest rate alternatives outside the Company. The average rate paid on interest-bearing deposits increased 33266 basis points to ~~0.52%~~2.88% due to the increase in short-term interest rates.

Average ~~demand deposits increased $133,756,000, or 29.5%. The increase was driven by significant liquidity in the economy resulting in higher deposit balances.~~

~~Average~~ accounts and drafts payable ~~increased $171,732,000,~~decreased $86.2 million, or ~~17.0%~~7.6%. The ~~increase~~decrease in average accounts and drafts payable was primarily driven by ~~inflationary pressures, fuel surcharges, and increased energy prices, which continue~~the decrease in transportation dollar volumes of 14.9%.

First half of 2023 compared to ~~drive prices higher.~~first half of 2022:

~~Tax-equivalent net~~Net interest income ~~increased $4,483,000, or 37.7%, compared to the same period~~ in the ~~prior year driven by the 10.2%~~first half of 2023 increased primarily due to an increase in ~~average interest-earning assets~~the Federal Funds rate throughout 2022 and ~~58 basis point increase in~~into the first half of 2023, positively affecting the net interest margin ~~from 2.32%~~which increased to ~~2.90%. The increase~~3.24% as compared to 2.45% in the ~~net interest margin~~prior year. This was ~~driven~~partially offset by the ~~increase in short-term interest rates which positively impacts the Company's net interest margin over time as~~decrease of average ~~interest-earning~~earning assets ~~of $2,243,219,000 greatly exceed average interest-bearing liabilities of $597,469,000.~~by $86.7 million, or 4.0%. The

~~-26-~~-25-

Table of Contents

~~Nine Months Ended September 30, 2022 compared~~yield on interest-earning assets increased 141 basis points from 2.50% to ~~Nine Months Ended September 30, 2021:~~3.91% while the cost of interest-bearing liabilities increased 233 basis points from 0.19% to 2.52%.

Average ~~earning assets~~loans increased ~~$230,728,000,~~$109.2 million, or ~~11.7%.~~11.3%, to $1.1 billion. This increase was due to loan growth during 2022, specifically in the Company's franchise restaurants, faith-based, and lease financing receivables portfolios. The ~~overall increase in~~ average ~~interest-earning asset balances was~~yield on loans increased 99 basis points to 4.72% primarily due to ~~increases~~the increase in ~~average investments and loans, partially offset by a decrease in average~~ short-term ~~investments.~~interest rates.

Average investment securities increased ~~$318,143,000,~~$26.0 million, or ~~70.0%.~~3.5%, as cash provided by increases in funding sources was utilized to purchase investment securities during 2022. The average yield on taxable investment securities increased 5993 basis points to ~~1.83%~~2.59% as a result of the increase in short and long-term interest rates. The average yield on tax-exempt investment securities declined ~~six~~17 basis points to ~~2.90%~~2.75%.

Average loans increased $87,424,000, or 9.9%. The average yield on loans declined 14 basis points to 3.83% primarily due to a $2,155,000 decrease in PPP loan fees, partially offset by the increase in short-term interest rates that began in March 2022. Excluding the impact of the PPP loan fees, the average yield on loans increased 19 basis points.

Average short-term investments decreased ~~$174,839,000,~~$221.9 million, or ~~27.9%, as available funds were deployed into investment securities and loans.~~48.0%. The decrease is primarily a result of the increase in the average balance of loans, coupled with the decrease in average funding sources. The average yield on short-term investments increased 90387 basis points to ~~1.01%~~4.38% primarily due to the increase in short-term interest ~~rates that began in March 2022.~~rates.

The average balance of interest-bearing deposits ~~increased $15,334,000,~~decreased $49.5 million, or ~~2.6% due~~8.3%. Average demand deposits decreased $45.9 million, or 7.7%. The Company has experienced deposit attrition as larger commercial depository clients moved their funds to ~~an increase in interest-bearing demand deposits.~~higher interest rate alternatives outside the Company. The average rate paid on interest-bearing deposits increased 9231 basis points to ~~0.30%~~2.50% due to the increase in short-term interest rates.

Average ~~demand deposits increased $164,488,000, or 38.2%. The increase was driven by significant liquidity in the economy resulting in higher deposit balances.~~

~~Average~~ accounts and drafts payable ~~increased $182,926,000,~~decreased $39.8 million, or ~~19.2%~~3.6%. The ~~increase~~decrease in average accounts and drafts payable was primarily driven by ~~inflationary pressures, fuel surcharges, and increased energy prices, which continue to drive prices higher.~~

~~Tax-equivalent net interest income increased $8,804,000, or 25.9%~~the decrease in transportation expense dollar volumes of 10.3%, compared to the same period in the prior year driven by the 11.7% increase in average interest-earning assets and 30 basis point increase in the net interest margin from 2.31% to 2.61%. The increase in the net interest margin was drivenpartially offset by the increase in ~~short-term interest rates which positively impacts the Company's net interest margin over time as average interest-earning assets~~facility-related dollar volumes of ~~$2,196,704,000 greatly exceed average interest-bearing liabilities of $598,812,000.~~

~~For more information on the changes in net interest income, please refer to the tables that follow.~~7.4%.

Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rate and Interest Differential

The following tables show the condensed average balance sheets for each of the periods reported, the tax-equivalent interest income and expense for each category of interest-earning assets and interest-bearing liabilities, and the average yield on such categories of interest-earning assets and the average rates paid on such categories of interest-bearing liabilities for each of the periods reported.

~~-27-~~-26-

Table of Contents


(In thousands)	(In thousands)	Third Quarter of 2022						Third Quarter of 2021						(In thousands)	Second Quarter of 2023						Second Quarter of 2022
		Average Balance		Interest Income/ Expense		Yield/ Rate		Average Balance		Interest Income/ Expense		Yield/ Rate			Average Balance		Interest Income/ Expense		Yield/ Rate		Average Balance		Interest Income/ Expense		Yield/ Rate
Assets1	Assets1													Assets1
Interest-earning assets	Interest-earning assets													Interest-earning assets
Loans2:	Loans2:													Loans2:	$	1,075,891	$	12,931	4.82	%	$	973,871	$	9,107	3.75	%
Taxable		$	984,104	$	10,005	4.03	%	$	873,070	$	8,987	4.08	%
Investment securities3:	Investment securities3:													Investment securities3:
Taxable	Taxable	554,315		2,948		2.11	%	209,662		731		1.38	%	Taxable	561,989		3,687		2.63	%	513,474		2,275		1.78	%
Tax-exempt4	Tax-exempt4	273,284		1,963		2.85	%	308,071		2,228		2.87	%	Tax-exempt4	187,661		1,253		2.68	%	284,366		2,075		2.93	%

Short-term investments	Short-term investments	431,516		2,249		2.07	%	645,493		241		0.15	%	Short-term investments	185,230		2,100		4.55	%	450,942		959		0.85	%
Total interest-earning assets	Total interest-earning assets	2,243,219		17,165		3.04	%	2,036,296		12,187		2.37	%	Total interest-earning assets	2,010,771		19,971		3.98	%	2,222,653		14,416		2.60	%
Non-interest-earning assets	Non-interest-earning assets													Non-interest-earning assets
Cash and due from banks	Cash and due from banks	19,084						18,778						Cash and due from banks	24,461						19,088
Premises and equipment, net	Premises and equipment, net	19,515						17,718						Premises and equipment, net	22,932						19,345
Bank-owned life insurance	Bank-owned life insurance	47,546						28,134						Bank-owned life insurance	48,391						47,267
Goodwill and other intangibles	Goodwill and other intangibles	21,745						17,167						Goodwill and other intangibles	21,159						18,089
Payments in advance of funding	Payments in advance of funding	277,682						213,922						Payments in advance of funding	254,869						293,150
Unrealized loss on investment securities														Unrealized loss on investment securities	(62,873)						(42,038)
Other assets	Other assets	1,602						52,412						Other assets	63,902						51,083
Allowance for credit losses	Allowance for credit losses	(12,579)						(11,183)						Allowance for credit losses	(13,253)						(12,417)
Total assets	Total assets	$	2,617,814					$	2,373,244					Total assets	$	2,370,359					$	2,616,220
Liabilities and Shareholders’ Equity1	Liabilities and Shareholders’ Equity1													Liabilities and Shareholders’ Equity1
Interest-bearing liabilities	Interest-bearing liabilities													Interest-bearing liabilities
Interest-bearing demand deposits	Interest-bearing demand deposits	$	545,539	$	701	0.51	%	$	531,541	$	145	0.11	%	Interest-bearing demand deposits	$	442,686	$	3,229	2.93	%	$	550,938	$	266	0.19	%
Savings deposits	Savings deposits	13,547		12		0.35	%	17,767		2		0.04	%	Savings deposits	6,457		26		1.62	%	12,894		3		0.09	%
Time deposits >= $100	Time deposits >= $100	16,325		37		0.90	%	19,403		49		1.00	%	Time deposits >= $100	21,934		151		2.76	%	16,926		36		0.85	%
Other time deposits	Other time deposits	22,047		32		0.58	%	31,542		91		1.14	%	Other time deposits	38,243		245		2.57	%	25,082		34		0.54	%
Total interest-bearing deposits	Total interest-bearing deposits	597,458		782		0.52	%	600,253		287		0.19	%	Total interest-bearing deposits	509,320		3,651		2.88	%	605,840		339		0.22	%
Short-term borrowings	Short-term borrowings	11		—		—	%	10		—		—	%	Short-term borrowings	3,199		43		5.39	%	21		—		—	%
Total interest-bearing liabilities	Total interest-bearing liabilities	597,469		782		0.52	%	600,263		287		0.19	%	Total interest-bearing liabilities	512,519		3,694		2.89	%	605,861		339		0.22	%
Non-interest bearing liabilities	Non-interest bearing liabilities													Non-interest bearing liabilities
Demand deposits	Demand deposits	586,872						453,116						Demand deposits	552,718						623,904
Accounts and drafts payable	Accounts and drafts payable	1,182,373						1,010,641						Accounts and drafts payable	1,049,281						1,135,504
Other liabilities	Other liabilities	43,852						54,703						Other liabilities	41,775						43,123
Total liabilities	Total liabilities	2,410,566						2,118,723						Total liabilities	2,156,293						2,408,392
Shareholders’ equity	Shareholders’ equity	207,248						254,521						Shareholders’ equity	214,066						207,828
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	2,617,814					$	2,373,244					Total liabilities and shareholders’ equity	$	2,370,359					$	2,616,220
Net interest income	Net interest income			$	16,383					$	11,900			Net interest income			$	16,277					$	14,077
Net interest margin	Net interest margin					2.90	%					2.32	%	Net interest margin					3.25	%					2.54	%
Interest spread	Interest spread					2.52	%					2.18	%	Interest spread					1.09	%					2.38	%

1.Balances shown are daily averages.

2.Interest income on loans includes net loan fees of ~~$99,000~~$291,000 and ~~$969,000~~$176,000 for the ~~third~~second quarter of 2023 and 2022, ~~and 2021,~~ respectively. ~~The decrease in net loan fees is due to higher PPP fees in 2021.~~

3.For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized cost of the investments.

4.Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for both ~~2022~~2023 and ~~2021.~~2022. The tax-equivalent adjustment was approximately ~~$412,000~~$263,000 and ~~$468,000~~$436,000 for the ~~third~~second quarter of ~~2022~~2023 and ~~2021,~~2022, respectively.

~~-28-~~-27-

Table of Contents


(In thousands)	(In thousands)	Nine Months Ended 2022						Nine Months Ended 2021						(In thousands)	First Half of 2023						First Half of 2022
		Average Balance		Interest Income/ Expense		Yield/ Rate		Average Balance		Interest Income/ Expense		Yield/ Rate			Average Balance		Interest Income/ Expense		Yield/ Rate		Average Balance		Interest Income/ Expense		Yield/ Rate
Assets1	Assets1													Assets1
Interest-earning assets	Interest-earning assets													Interest-earning assets
Loans2:	Loans2:													Loans2:
Taxable	Taxable	$	972,698	$	27,890	3.83	%	$	885,274	$	26,270	3.97	%	Taxable	$	1,076,055	$	25,166	4.72	%	$	966,900	$	17,884	3.73	%
Investment securities3:	Investment securities3:													Investment securities3:
Taxable	Taxable	488,257		6,679		1.83	%	149,953		1,387		1.24	%	Taxable	566,804		7,274		2.59	%	454,681		3,732		1.66	%
Tax-exempt4	Tax-exempt4	284,187		6,161		2.90	%	304,348		6,748		2.96	%	Tax-exempt4	203,587		2,781		2.75	%	289,729		4,198		2.92	%

Short-term investments	Short-term investments	451,562		3,423		1.01	%	626,401		515		0.11	%	Short-term investments	239,886		5,213		4.38	%	461,750		1,174		0.51	%
Total interest-earning assets	Total interest-earning assets	2,196,704		44,153		2.69	%	1,965,976		34,920		2.37	%	Total interest-earning assets	2,086,332		40,434		3.91	%	2,173,060		26,988		2.50	%
Non-interest-earning assets:	Non-interest-earning assets:													Non-interest-earning assets:
Cash and due from banks	Cash and due from banks	20,304						19,890						Cash and due from banks	23,260						20,924
Premises and equipment, net	Premises and equipment, net	19,192						17,877						Premises and equipment, net	21,689						19,027
Bank-owned life insurance	Bank-owned life insurance	46,009						21,286						Bank-owned life insurance	48,252						45,228
Goodwill and other intangibles	Goodwill and other intangibles	18,887						17,381						Goodwill and other intangibles	21,257						17,434
Payments in advance of funding	Payments in advance of funding	283,430						196,492						Payments in advance of funding	247,918						286,352
Unrealized loss on investment securities														Unrealized loss on investment securities	(64,689)						(21,805)
Other assets	Other assets	15,583						52,142						Other assets	63,869						44,497
Allowance for credit losses	Allowance for credit losses	(12,349)						(11,615)						Allowance for credit losses	(13,394)						(12,232)
Total assets	Total assets	$	2,587,760					$	2,279,429					Total assets	$	2,434,494					$	2,572,485
Liabilities and Shareholders’ Equity1	Liabilities and Shareholders’ Equity1													Liabilities and Shareholders’ Equity1
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Interest-bearing demand deposits	Interest-bearing demand deposits	$	542,378	$	1,102	0.27	%	$	510,886	$	431	0.11	%	Interest-bearing demand deposits	$	482,825	$	6,053	2.53	%	$	540,771	$	402	0.15	%
Savings deposits	Savings deposits	14,628		17		0.16	%	19,098		7		0.05	%	Savings deposits	6,778		48		1.43	%	15,178		5		0.07	%
Time deposits >= $100	Time deposits >= $100	17,054		115		0.90	%	22,231		200		1.20	%	Time deposits >= $100	22,863		260		2.29	%	17,424		78		0.90	%
Other time deposits	Other time deposits	24,741		110		0.59	%	31,253		277		1.18	%	Other time deposits	37,519		461		2.48	%	26,111		77		0.59	%
Total interest-bearing deposits	Total interest-bearing deposits	598,801		1,344		0.30	%	583,468		915		0.21	%	Total interest-bearing deposits	549,985		6,822		2.50	%	599,484		562		0.19	%
Short-term borrowings	Short-term borrowings	11		—		—	%	10		—		—	%	Short-term borrowings	4,509		116		5.19	%	10		—		—	%
Total interest-bearing liabilities	Total interest-bearing liabilities	598,812		1,344		0.30	%	583,478		915		0.21	%	Total interest-bearing liabilities	554,494		6,938		2.52	%	599,494		562		0.19	%
Non-interest bearing liabilities:	Non-interest bearing liabilities:													Non-interest bearing liabilities:
Demand deposits	Demand deposits	594,994						430,506						Demand deposits	553,178						599,122
Accounts and drafts payable	Accounts and drafts payable	1,135,673						952,747						Accounts and drafts payable	1,072,105						1,111,935
Other liabilities	Other liabilities	41,454						54,935						Other liabilities	42,777						40,237
Total liabilities	Total liabilities	2,370,933						2,021,666						Total liabilities	2,222,554						2,350,788
Shareholders’ equity	Shareholders’ equity	216,827						257,763						Shareholders’ equity	211,940						221,697
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	2,587,760					$	2,279,429					Total liabilities and shareholders’ equity	$	2,434,494					$	2,572,485
Net interest income	Net interest income			$	42,809					$	34,005			Net interest income			$	33,496					$	26,426
Net interest margin	Net interest margin					2.61	%					2.31	%	Net interest margin					3.24	%					2.45	%
Interest spread	Interest spread					2.39	%					2.17	%	Interest spread					1.39	%					2.31	%

1.Balances shown are daily averages.

2.Interest income on loans includes net loan fees of ~~$500,000~~$511,000 and ~~$2,738,000~~$401,000 for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ respectively. ~~The decrease in net loan fees is due to higher PPP fees in 2021.~~

3.For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized cost of the investments.

4.Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for both the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022. The tax-equivalent adjustment was approximately ~~$1,294,000~~$584,000 and ~~$1,417,000~~$882,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

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Table of Contents

Analysis of Net Interest Income Changes

The following tables present the changes in interest income and expense between periods due to changes in volume and interest rates. That portion of the change in interest attributable to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the absolute dollar amounts of the change in each.


(In thousands)	(In thousands)	Third Quarter of 2022 Compared to Third Quarter of 2021						(In thousands)	Second Quarter of 2023 Compared to Second Quarter of 2022
		Volume		Rate		Total			Volume		Rate		Total
Increase (decrease) in interest income:	Increase (decrease) in interest income:							Increase (decrease) in interest income:
Loans1:	Loans1:							Loans1:	$	1,027	$	2,797	$	3,824
Taxable		$	1,130	$	(112)	$	1,018
Investment securities:	Investment securities:							Investment securities:
Taxable	Taxable	1,680		537		2,217		Taxable	233		1,179		1,412
Tax-exempt2	Tax-exempt2	(250)		(15)		(265)		Tax-exempt2	(657)		(165)		(822)

Short-term investments	Short-term investments	(106)		2,114		2,008		Short-term investments	(856)		1,997		1,141
Total interest income	Total interest income	2,454		2,524		4,978		Total interest income	(253)		5,808		5,555
Interest expense on:	Interest expense on:							Interest expense on:
Interest-bearing demand deposits	Interest-bearing demand deposits	4		552		556		Interest-bearing demand deposits	(61)		3,024		2,963
Savings deposits	Savings deposits	(1)		11		10		Savings deposits	(2)		25		23
Time deposits >=$100	Time deposits >=$100	(7)		(5)		(12)		Time deposits >=$100	13		102		115
Other time deposits	Other time deposits	(22)		(37)		(59)		Other time deposits	26		185		211
Short-term borrowings								Short-term borrowings	—		43		43
Total interest expense	Total interest expense	(26)		521		495		Total interest expense	(24)		3,379		3,355
Net interest income	Net interest income	$	2,480	$	2,003	$	4,483	Net interest income	$	(229)	$	2,429	$	2,200

1.Interest income includes net loan fees.

2.Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~

2022.


(In thousands)	(In thousands)	Nine Months Ended 2022 Compared to Nine Months Ended of 2021						(In thousands)	First Half of 2023 Compared to First Half of 2022
		Volume		Rate		Total			Volume		Rate		Total
Increase (decrease) in interest income:	Increase (decrease) in interest income:							Increase (decrease) in interest income:
Loans1:	Loans1:							Loans1:
Taxable	Taxable	$	2,529	$	(909)	$	1,620	Taxable	$	2,173	$	5,109	$	7,282
Investment securities:	Investment securities:							Investment securities:
Taxable	Taxable	4,365		927		5,292		Taxable	1,083		2,459		3,542
Tax-exempt2	Tax-exempt2	(440)		(147)		(587)		Tax-exempt2	(1,185)		(232)		(1,417)

Short-term investments	Short-term investments	(183)		3,091		2,908		Short-term investments	(815)		4,854		4,039
Total interest income	Total interest income	6,271		2,962		9,233		Total interest income	1,256		12,190		13,446
Interest expense on:	Interest expense on:							Interest expense on:
Interest-bearing demand deposits	Interest-bearing demand deposits	28		643		671		Interest-bearing demand deposits	(48)		5,699		5,651
Savings deposits	Savings deposits	(2)		12		10		Savings deposits	(4)		47		43
Time deposits >=$100	Time deposits >=$100	(41)		(44)		(85)		Time deposits >=$100	31		151		182
Other time deposits	Other time deposits	(49)		(118)		(167)		Other time deposits	46		338		384

Short-term borrowings								Short-term borrowings	—		116		116
Total interest expense	Total interest expense	(64)		493		429		Total interest expense	25		6,351		6,376
Net interest income	Net interest income	$	6,335	$	2,469	$	8,804	Net interest income	$	1,231	$	5,839	$	7,070

1.Interest income includes net loan fees.

2.Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for the ~~three~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.

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Provision and Allowance for Credit Losses and Allowance for Unfunded Commitments

The Company recorded a ~~provision for~~release of credit losses and off-balance sheet credit exposures of ~~$550,000,~~$120,000 and ~~$340,000~~a provision for credit losses of $70,000 in the ~~Third Quarter~~second quarter of ~~2022~~2023 and ~~2021,~~2022, respectively. The Company recorded a ~~provision for~~release of credit losses and off-balance sheet credit exposures of ~~$850,000,~~$460,000 and ~~release of~~a provision for credit losses of ~~$870,000~~$300,000 in the ~~Nine Months Ended~~first half of 2023 and 2022, ~~and 2021,~~ respectively. The amount of the (release of) provision for ~~(release of)~~ credit losses is derived from the Company’s quarterly Current Expected Credit Loss (“CECL”) model. The amount of the (release of) provision for ~~(release of)~~ credit losses will fluctuate as determined by these quarterly analyses. The ~~provision for~~release of credit losses in the ~~Third Quarter~~second quarter of ~~2022~~2023 and the ~~Nine Months Ended 2022~~first half of 2023 was primarily driven by the decrease in loan ~~growth and external economic factors, including the reduction in the forecast of Gross Domestic Product.~~balances outstanding from December 31, 2022.

The Company experienced no ~~net~~ loan ~~recoveries~~charge-offs in the ~~Third Quarter~~second quarter of ~~2022~~2023 and ~~$11,000 in the Third Quarter of 2021. There were $12,000 net loan recoveries in the Nine Months Ended 2022 and $28,000 in the Nine Months Ended 2021.~~2022. The ACL was ~~$13,049,000~~$13.2 million at ~~September~~June 30, ~~2022 compared to $12,041,000~~2023 and $13.5 million at December 31, ~~2021.~~2022. The ACL represented ~~1.26%~~1.25% of outstanding loans at ~~September~~June 30, ~~2022~~2023 and 1.25% of outstanding loans at December 31, ~~2021.~~2022. The allowance for unfunded commitments was ~~$222,000~~$117,000 at ~~September~~June 30, ~~2022~~2023 and ~~$367,000~~$232,000 at December 31, ~~2021.~~2022. There were no nonperforming loans outstanding at ~~September~~June 30, ~~2022 or~~2023. The Company had one loan that was considered an individually evaluated credit at December 31, ~~2021.~~2022, with no specific allowance. This loan was paid off in full in January 2023.

The ACL has been established and is maintained to estimate the lifetime expected credit losses in the loan portfolio. An ongoing assessment is performed to determine if the balance is adequate. Charges or credits are made to expense based on changes in the economic forecast, qualitative risk factors, loan volume, and individual loans. For loans that are individually evaluated, the Company uses two impairment measurement methods: 1) the present value of expected future cash flows and 2) collateral value.

The Company also utilizes ratio analyses to evaluate the overall reasonableness of the ACL compared to its peers and required levels of regulatory capital. Federal and state regulatory agencies review the Company’s methodology for maintaining the ACL. These agencies may require the Company to adjust the ACL based on their judgments and interpretations about information available to them at the time of their examinations.

Summary of Credit Loss Experience

The following table presents information on the Company's (release of) provision for ~~(release of)~~ credit losses and analysis of the ACL:


		Third Quarter of						Nine Months Ended							Second Quarter of						First Half of
(In thousands)	(In thousands)	2022			2021			2022			2021			(In thousands)	2023			2022			2023			2022
Allowance for credit losses at beginning of period	Allowance for credit losses at beginning of period	$	12,573		$	11,171		$	12,041		$	11,944		Allowance for credit losses at beginning of period	$	13,254		$	12,406		$	13,539		$	12,041
Provision for (release of) credit losses		476			350			996			(440)
Loans charged off		—			—			—			—
Recoveries on loans previously charged off		—			11			12			28
(Release of) provision for credit losses														(Release of) provision for credit losses	(60)			155			(345)			520
Net recoveries	Net recoveries	—			11			12			28			Net recoveries	—			12			—			12
Allowance for credit losses at end of period	Allowance for credit losses at end of period	$	13,049		$	11,532		$	13,049		$	11,532		Allowance for credit losses at end of period	$	13,194		$	12,573		$	13,194		$	12,573
Allowance for unfunded commitments at beginning of Period		$	147		$	147		$	367		$	567
Provision for (release of) credit losses		75			(10)			(145)			(430)

Allowance for unfunded commitments at beginning of period														Allowance for unfunded commitments at beginning of period	$	177		$	232		$	232		$	367
(Release of) provision for credit losses														(Release of) provision for credit losses	(60)			(85)			(115)			(220)
Allowance for unfunded commitments at end of period	Allowance for unfunded commitments at end of period	$	222		$	137		222			137			Allowance for unfunded commitments at end of period	$	117		$	147		$	117		$	147

Loans outstanding:	Loans outstanding:													Loans outstanding:
Average	Average	$	984,104		$	873,070		$	972,697		$	885,274		Average	$	1,075,891		$	973,871		$	1,076,055		$	966,900
September 30		1,037,101			872,905			1,037,101			872,905
Ratio of ACL to loans outstanding:
Average		1.33		%	1.32		%	1.34		%	1.30		%
September 30		1.26		%	1.32		%	1.26		%	1.32		%
June 30														June 30	$	1,055,848		$	959,487		$	1,055,848		$	959,487
Ratio of allowance for credit losses to loans outstanding at June 30														Ratio of allowance for credit losses to loans outstanding at June 30	1.25		%	1.31		%	1.25		%	1.31		%

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Operating Expenses

Total operating expenses for the ~~Third Quarter~~second quarter of ~~2022~~2023 increased ~~$5,631,000,~~$5.7 million, or ~~18.3%~~16.9%, compared to the ~~Third Quarter~~second quarter of ~~2021.~~2022. Total operating expenses for the ~~Nine Months Ended 2022~~first half of 2023 increased ~~$12,770,000,~~$14.2 million, or ~~14.3%~~21.8%, compared to the ~~Nine Months Ended 2021.~~first half of 2022. The following table details the components of operating expenses:

(In thousands) Third Quarter of Nine Months Ended
2022 2021 2022 2021
Personnel $ 26,999 $ 23,283 $ 77,750 $ 68,689
Occupancy 970 953 2,801 2,859
Equipment 1,633 1,700 5,004 5,028
Amortization of intangible assets 195 215 485 644
Other operating 6,524 4,539 15,748 11,798
Total operating expense $ 36,321 $ 30,690 $ 101,788 $ 89,018

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~~Third Quarter~~


(In thousands)	Second Quarter of				First Half of
	2023		2022		2023		2022
Salaries and commissions	$	23,617	$	20,932	$	46,222	$	40,564
Share-based compensation	909		1,832		2,859		3,172
Net periodic pension cost (benefit)	138		(612)		273		(1,231)
Other benefits	4,768		3,881		10,104		8,246
Personnel	$	29,432	$	26,033	$	59,458	$	50,751
Occupancy	907		916		1,762		1,831
Equipment	1,749		1,660		3,399		3,371
Amortization of intangible assets	195		155		390		290
Other operating	7,056		4,875		14,702		9,224
Total operating expense	$	39,339	$	33,639	$	79,711	$	65,467

Second quarter of ~~2022~~2023 compared to ~~Third Quarter~~second quarter of ~~2021:~~2022:

Personnel ~~costs~~expenses increased ~~$3,716,000,~~$3.4 million, or ~~16.0%~~13.1%. ~~Base salaries~~Salaries and commissions increased $2.7 million, or 12.8%, as a result of merit increases, wage pressures, and an increase in average full-time equivalent employees of ~~7.5%~~10.9% due to ~~the Touchpoint acquisition and~~ strategic investments in various technology ~~initiatives, including improved rating engine capabilities~~initiatives. Share-based compensation decreased $923,000 primarily related to revaluation of performance-based restricted shares in the second quarter of 2022. Pension expense increased $750,000. Despite the Company’s defined benefit pension plan being frozen in the first quarter of 2021, resulting in no service cost in subsequent periods, expense increased as a result of the accounting impact of the decline in plan assets during 2022 and ~~investment~~corresponding decline in ~~optical character recognition, artificial intelligence, machine learning~~expected return on plan assets for 2023. Other benefits, such as 401(k) match, health insurance and ~~other processes~~payroll taxes, increased $887,000, or 22.9%, primarily due to ~~read images and produce data. Also driving~~ the 10.9% increase in ~~personnel expense were increases~~average full-time equivalent employees as well as a significant increase in ~~stock compensation and profit sharing of $241,000 and $448,000, respectively, due to improved Company earnings.~~employer health insurance costs over prior year levels.

Other operating expenses increased ~~$1,985,000,~~$2.2 million, or ~~43.7%~~44.7%. ~~These expenses increased due to higher levels of travel, employee procurement,~~Certain expense categories such as outside service fees and data processing are elevated as the Company invests in, and ~~other professional fees. Partially causing the increase in data processing and other professional fees is investments in technology initiatives, resulting in elevated expense levels as multiple~~transitions to, improved technology. Multiple technology platforms are being maintained prior to switching over to what the Company believes will be more efficient technology platforms for facility and ~~freight~~transportation data entry processing by the end of 2023.

~~Nine Months Ended September 30, 2022~~First half of 2023 compared to ~~Nine Months Ended September 30, 2021:~~first half of 2022:

Personnel ~~costs~~expenses increased ~~$9,061,000,~~$8.7 million, or ~~13.2%~~17.2%, which included a salary and commission increase of $5.7 million, or 13.9%. ~~Base salaries~~Share-based compensation decreased $313,000, and pension expense increased $1.5 million. Other benefits, such as 401(k) match, health insurance and payroll taxes, increased $1.9 million, or 22.5%. These personnel expense changes were all a result of ~~merit increases, wage pressures, an increase in average full-time equivalent employees~~the same factors as the second quarter of 3.8% due to the Touchpoint acquisition and strategic investments in various technology initiatives as described above. Also driving the increase in personnel expense were increases in stock compensation and profit sharing of $1,894,000 and $1,061,000, respectively, due to improved Company earnings.2023.

Other operating expenses increased ~~$3,950,000,~~$5.5 million, or ~~33.5%. These expenses increased due to higher levels~~59.4%, a result of ~~travel, employee procurement, data processing and other professional fees~~the same factors as ~~described above.~~the second quarter of 2023.

Financial Condition

Total assets at ~~September~~June 30, ~~2022~~2023 were ~~$2,610,815,000, an increase~~$2.5 billion, a decrease of ~~$55,914,000,~~$102.2 million, or ~~2.2%~~4.0%, from December 31, ~~2021.~~2022.

The Company experienced ~~a decrease~~an increase in cash and cash equivalents of ~~$167,934,000,~~$69.5 million, or ~~32.6%.~~34.6% during the first half of 2023. The change in cash and cash equivalents reflects the Company’s daily liquidity position and is primarily affected by changes in funding sources, mainly accounts and drafts payable and deposits, cash flows in and out of loans, investments securities and payments in advance of funding. ~~The decrease in cash and cash equivalents was primarily due to growth in loans and investment securities, which utilized cash to fund such growth.~~

The investment securities portfolio ~~increased $90,336,000,~~decreased $117.0 million, or ~~13.4%~~15.5%, during the first ~~nine months~~half of ~~2022. Cash~~2023. The decrease is due to the sale of $111.1 million of available-for-sale securities and ~~cash equivalents were utilized to purchase U.S. treasury bonds, which increased~~maturities of $22.5 million, partially offset by purchases of $15.3 million.

Loans decreased $27.1 million, or 2.5% from ~~$0 at~~ December 31, ~~2021 to $155,119,000 at September 30,~~ 2022. The ~~Company purchased U.S. treasury bonds with maturities between one and two years.~~decrease was primarily due to a decrease in lease financing receivables of $26.5 million.

~~Loans increased $76,534,000,~~Payments in advance of funding decreased $24.6 million, or ~~8.0%~~8.4%. The ~~Company experienced $88,936,000 of growth in commercial and industrial loans~~decrease is primarily due to ~~growth~~a 14.9% decrease in ~~restaurant franchise loans and investment grade leases.~~transportation dollar volumes, which led to fewer dollars advanced to freight carriers.

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~~Payments in advance of funding decreased $22,206,000, or 7.6%. The decrease in the balance is primarily due to timing as average balances are higher for the three~~Accounts and ~~nine months ended September 30, 2022 as compared to the same periods in 2021.~~

~~Other assets increased $69,588,000 due to an increase in the deferred tax asset of $20,747,000 as a result of unrealized losses on investment securities and an increase in accounts~~drafts receivable from customers ~~of $45,699,000.~~

~~Total liabilities at September 30, 2022 were $2,419,080,000, an increase of $109,977,000,~~decreased $12.2 million, or ~~4.8%~~12.7%, from December 31, ~~2021.~~2022. The decrease is solely due to timing of customer funding.

Total deposits at ~~September~~June 30, ~~2022~~2023 were ~~$1,229,721,000, an increase~~$1.2 billion, a decrease of ~~$8,218,000,~~$65.8 million, or ~~0.7%~~5.2%, from December 31, ~~2021. Increases in demand deposits have offset declines in time deposits.~~2022. The Company experienced deposit attrition as larger depository clients moved their funds to higher interest rate alternatives outside of Cass Commercial Bank.

Accounts and drafts payable at ~~September~~June 30, ~~2022~~2023 were ~~$1,146,334,000, an increase~~$1.0 billion, a decrease of ~~$95,938,000,~~$46.1 million, or ~~9.1%~~4.3%, from December 31, ~~2021.~~2022. The decrease in these balances, which are non-interest bearing, are primarily reflective of the decrease in fuel costs and overall freight rates in the transportation industry. Accounts and drafts payable are a stable source of funding generated by payment float from transportation and facility clients. Accounts and drafts payable will fluctuate from period-end to period-end due to the payment processing cycle, which results in lower balances on days when payments clear and higher balances on days when payments are issued. For this reason, average balances are generally a more meaningful measure of accounts and drafts ~~payable (for average balances refer to the tables under the “Distribution~~payable.

Total liabilities at June 30, 2023 were $2.3 billion, a decrease of ~~Assets, Liabilities and Shareholders’ Equity; Interest Rate and Interest Differential” section of this report).~~$111.0 million, or 4.7%, from December 31, 2022.

Total shareholders’ equity at ~~September~~June 30, ~~2022~~2023 was ~~$191,735,000, a $54,063,000,~~$215.1 million, an $8.8 million, or ~~22.0%~~4.3%, ~~decrease~~increase from December 31, ~~2021. Total~~2022. The increase in shareholders’ equity ~~decreased due to~~is a ~~change~~result of year-to-date 2023 earnings of $14.3 million and a decrease in accumulated other comprehensive loss of ~~$66,832,000 as a result of~~$2.9 million due to the decline in market interest rates ~~continuing to rise~~ and ~~the negative~~resulting positive impact on the fair value of ~~existing~~available-for-sale investment ~~securities, share repurchases of $5,299,000, and dividends paid of $11,478,000.~~securities. These ~~decreases~~increases were partially offset by ~~net income~~dividends paid of ~~$25,619,000~~$7.9 million and ~~stock-based compensation expense~~the repurchase of ~~$4,479,000.~~Company stock of $2.4 million.

Liquidity and Capital Resources

The discipline of liquidity management as practiced by the Company seeks to ensure that funds are available to fulfill all payment obligations relating to invoices processed as they become due and meet depositor withdrawal requests and borrower credit demands while at the same time maximizing profitability. This is accomplished by balancing changes in demand for funds with changes in supply of funds. Primary liquidity to meet demand is provided by short-term liquid assets that can be converted to cash, maturing securities and the ability to obtain funds from external sources. The Company's Asset/Liability Committee has direct oversight responsibility for the Company's liquidity position and profile. Management considers both on-balance sheet and off-balance sheet items in its evaluation of liquidity.

The balance of liquid assets consists of cash and cash equivalents, which include cash and due from banks, interest-bearing deposits in other financial institutions, federal funds sold and money market funds. Cash and cash equivalents totaled ~~$346,994,000~~$270.5 million at ~~September~~June 30, ~~2022, a decrease~~2023, an increase of ~~$167,934,000,~~$69.5 million, or ~~32.6%~~34.6%, from December 31, ~~2021.~~2022. At ~~September~~June 30, ~~2022,~~2023, these assets represented ~~13.3%~~10.9% of total ~~assets. These funds~~assets and are the Company’s and its subsidiaries’ primary source of liquidity to meet future expected and unexpected loan demand, depositor withdrawals or reductions in accounts and drafts payable.

Secondary sources of liquidity include the investment portfolio and borrowing lines. Total investment securities were ~~$763,789,000~~$637.5 million at ~~September~~June 30, ~~2022, an increase~~2023, a decrease of ~~$90,336,000~~$117.0 million from December 31, ~~2021.~~2022. These assets represented ~~29.3%~~25.8% of total assets at ~~September~~June 30, ~~2022.~~2023. Of the total portfolio, ~~8.5%~~17.6% mature in one year, ~~34.1%~~22.3% mature in one to five years, and ~~57.4%~~60.1% mature in five or more years.

The Bank has unsecured lines of credit at six correspondent banks to purchase federal funds up to a maximum of ~~$83,000,000~~$83.0 million in aggregate. As of ~~September~~June 30, ~~2022,~~2023, the Bank also has secured lines of credit with the Federal Home Loan Bank of ~~$228,858,000~~$214.3 million collateralized by mortgage loans. The Company also has secured lines of credit from ~~two~~three banks up to a maximum of ~~$150,000,000~~$250.0 million in aggregate collateralized by ~~state and political subdivision~~investment securities. There were no amounts outstanding under any line of credit as of ~~September~~June 30, ~~2022~~2023 or December 31, ~~2021.~~2022.

The deposits of the Company's banking subsidiary have historically been stable, consisting of a sizable volume of core deposits related to customers that utilize other commercial products of the ~~Bank.~~Bank, including CassPay and faith-based customers. The accounts and drafts payable generated by the Company has also historically been a stable source of funds. The Company is part of the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) deposit placement programs. Time deposits include ~~$18,220,000~~$36.5 million of CDARS deposits and interest-bearing demand deposits include ~~$117,993,000~~$125.8 million of ICS deposits. These programs offer the Bank’s customers the ability to maximize Federal Deposit Insurance Corporation (“FDIC”) insurance coverage. The Company uses these programs to retain or attract deposits from existing customers.

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Net cash flows provided by operating activities were ~~$40,799,000~~$17.0 million for the ~~nine~~six months ended ~~September~~June 30, 2023, compared to $31.1 million for the six months ended June 30, 2022, ~~compared to $30,680,000 for the nine months ended September 30, 2021, an increase~~a decrease of ~~$10,119,000.~~$14.1 million. Net cash flows from investing and financing activities fluctuate greatly as the Company actively manages its investment and loan portfolios and customer activity influences changes in deposit and accounts and drafts payable balances. Other causes for the changes in these account balances are discussed earlier in this report. Due to the daily fluctuations in these account balances, the analysis of changes in average balances, also discussed earlier in this report, can be more indicative of underlying activity than the period-end balances used in the statements of cash flows. Management anticipates that cash and cash equivalents, maturing investments and cash from operations will continue to be sufficient to fund the Company’s operations and capital expenditures in ~~2022,~~2023, which are estimated to range from $4$8 million to $6$10 million.

Net income plus amortization of intangible assets, net amortization of premium/discount on investment securities and depreciation of premises and equipment was $19.0 million and $22.5 million for the three months ended June 30, 2023 and 2022, respectively, a decrease of $3.5 million. The decrease was due to lower net income of $2.6 million and lower net amortization of premium/discount on investment securities of $1.0 million. The net amortization of premium/discount on investment securities is dependent on the type of securities purchased and changes in the prevailing market interest rate environment.

Other factors impacting the $14.1 million decrease in net cash provided by operating activities include:

•A decrease in other operating activities, net of $5.9 million, primarily due to changes in various accounts receivable and payable;

•An increase in accounts receivable of $3.6 million due to the timing of customer payments;

•A decrease in current income tax liability of $1.7 million; and

•A change in the (release of) provision for credit losses of $760,000 primarily due to changes in loans outstanding during the respective periods.

These factors were partially offset by an increase in the pension liability of $1.5 million.

The Company faces market risk to the extent that its net interest income and fair market value of equity are affected by changes in market interest rates. For information regarding the market risk of the Company’s financial instruments, see Item 3, “Quantitative and Qualitative Disclosures about Market Risk.”

There are several trends and uncertainties that may impact the Company’s ability to generate revenues and income at the levels that it has in the past. ~~In addition, these trends and uncertainties may impact available liquidity.~~ Those that could significantly impact the Company include the general levels of interest rates, business activity, inflation, and energy costs as well as new business opportunities available to the Company.

~~As a financial institution, a significant source of~~ For more detailed information on these trends and uncertainties and how they can generally affect the Company’s ~~earnings is generated from net interest income. Therefore, the prevailing interest rate environment is important to~~available liquidity, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity” in the Company’s performance. A major portion of the Company’s funding sources are the non-interest bearing accounts and drafts payable generated from its payment and information processing services. Accordingly, higher levels of interest rates will generally allow the Company to earn more net interest income. Conversely, a lower interest rate environment will generally tend to depress net interest income. The Company actively manages its balance sheet in an effort to maximize net interest income as the interest rate environment changes. This balance sheet management impacts the mix of earning assets maintained by the Company at any point in time. For example, in a low interest rate environment, short-term relatively lower rate liquid investments may be reduced in favor of longer term relatively higher yielding investments and loans. If the primary source of liquidity is reduced in a low interest rate environment, a greater reliance would be placed on secondary sources of liquidity including borrowing lines, the ability of the Bank to generate deposits, and the investment portfolio to ensure overall liquidity remains at acceptable levels.

The overall level of economic activity can have a significant impact on the Company’s ability to generate revenues and income, as the volume and size of customer invoices processed may increase or decrease. Higher levels of economic activity increase both fee income (as more invoices are processed) and balances of accounts and drafts payable. Lower levels of economic activity, such as those previously experienced by the Company as a result of COVID-19 and governmental actions related thereto, decrease both fee income and balances of accounts and drafts payable.

The relative level of energy costs can impact the Company’s earnings and available liquidity. Lower levels of energy costs will tend to decrease transportation and energy invoice amounts resulting in a corresponding decrease in accounts and drafts payable. Decreases in accounts and drafts payable generate lower interest income.

New business opportunities are an important component of the Company’s strategy to grow earnings and improve performance. Generating new customers allows the Company to leverage existing systems and facilities and grow revenues faster than expenses.2022 Form 10-K.

As a bank holding company, the Company and the Bank are subject to capital requirements ~~pursuant to the FRB’s capital~~administered by state and federal banking agencies. Capital adequacy guidelines, ~~which include (i) risk-based capital guidelines, which are designed to make capital requirements more sensitive to various risk profiles~~ and, ~~account~~ for banks, prompt correct action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet ~~exposure; (ii) guidelines that consider market risk, which is the risk of loss due to change in value of assets~~items calculated under regulatory accounting practices. Capital amounts and liabilities due to changes in interest rates; and (iii) guidelines that use a leverage ratio which places a constraint on the maximum degree of risk to which a financial holding company may leverage its equity capital base.

~~The Basel III Capital Rules require banking organizations, like Cass, to maintain:~~

•~~a minimum ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer;~~

•~~a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus a 2.5% capital conservation buffer;~~

•~~a minimum ratio of total capital (that is, Tier 1 plus Tier 2 capital) to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer; and~~

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•~~a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to adjusted average consolidated assets.~~

The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 capital to risk-weighted assets above the minimum but below the conservation buffer will face limitations on the payment of dividends, common stock repurchases and discretionary cash payments to executive officers based on the amount of the shortfall.

Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and Additional Tier 1 capital. Additional Tier 1 capital generally includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus Additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements. Also included in Tier 2 capital is the allowance for credit losses limited to a maximum of 1.25% of risk-weighted assets and, for non-advanced approaches institutions like Cass that have exercised a one-time opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. The calculation of all types of regulatory capital isclassifications are subject to ~~deductions~~qualitative judgments by regulators about components, risk weighting, and ~~adjustments specified in applicable regulations.~~

~~The~~other factors. In addition, the calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. For ~~instance,~~example, as allowed under the Basel III Capital Rules, the Company has elected to opt-out of the requirement to include most components of accumulated other comprehensive income in common equity Tier 1 capital. For more information on these regulatory requirements, including the Basel III Capital Rules and capital classifications, see Item 1, "Business-Supervision and Regulation" of the ~~Capital Simplification Rules provide for a number~~Company's 2022 Form 10-K.

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Table of deductions from and adjustments to common equity Tier 1 capital. These include, for example, the requirement that certain deferred tax assets and significant investments in non-consolidated financial entities be deducted from Tier 1 capital to the extent that any one such category exceeds 25% of common equity Tier 1 capital.Contents

In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets, are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one to four-family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans, and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.

The Company and the Bank continue to exceed all regulatory capital requirements, as evidenced by the following capital amounts and ratios:


		September 30, 2022				December 31, 2021					Actual				Capital Requirements				Requirement to be Well-Capitalized
(Dollars in thousands)		Amount		Ratio		Amount		Ratio
(In thousands)										(In thousands)	Amount		Ratio		Amount		Ratio		Amount	Ratio
At June 30, 2023										At June 30, 2023
Total capital (to risk-weighted assets)	Total capital (to risk-weighted assets)									Total capital (to risk-weighted assets)
Cass Information Systems, Inc.	Cass Information Systems, Inc.	$	248,833	14.07	%	$	240,265	14.86	%	Cass Information Systems, Inc.	$	263,467	14.39	%	$	146,482	8.00	%	$ N/A	N/A %
Cass Commercial Bank	Cass Commercial Bank	183,264		16.08	%	174,614		17.21	%	Cass Commercial Bank	191,355		17.06		89,726		8.00		112,157	10.00
Common equity tier I capital (to risk-weighted assets)
Common Equity Tier I Capital (to risk-weighted assets)										Common Equity Tier I Capital (to risk-weighted assets)
Cass Information Systems, Inc.	Cass Information Systems, Inc.	$	235,784	13.33	%	$	228,224	14.11	%	Cass Information Systems, Inc.	250,156		13.66		82,396		4.50		N/A	N/A
Cass Commercial Bank	Cass Commercial Bank	170,532		14.96	%	163,030		16.07	%	Cass Commercial Bank	178,800		15.94		50,471		4.50		72,902	6.50
Tier I capital (to risk-weighted assets)	Tier I capital (to risk-weighted assets)									Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc.	Cass Information Systems, Inc.	$	235,784	13.33	%	$	228,224	14.11	%	Cass Information Systems, Inc.	250,156		13.66		109,862		6.00		N/A	N/A
Cass Commercial Bank	Cass Commercial Bank	170,532		14.96	%	163,030		16.07	%	Cass Commercial Bank	178,800		15.94		67,294		6.00		89,726	8.00
Tier I capital (to leverage assets)						��
Tier I capital (to average assets)										Tier I capital (to average assets)
Cass Information Systems, Inc.	Cass Information Systems, Inc.	$	235,784	9.08	%	$	228,224	9.21	%	Cass Information Systems, Inc.	250,156		10.65		93,973		4.00		N/A	N/A
Cass Commercial Bank	Cass Commercial Bank	170,532		10.44	%	163,030		11.05	%	Cass Commercial Bank	178,800		12.37		57,839		4.00		72,299	5.00
At December 31, 2022										At December 31, 2022
Total capital (to risk-weighted assets)										Total capital (to risk-weighted assets)
Cass Information Systems, Inc.										Cass Information Systems, Inc.	$	257,313	13.52	%	$	152,306	8.00	%	$ N/A	N/A %
Cass Commercial Bank										Cass Commercial Bank	186,075		16.00		93,044		8.00		116,305	10.00
Common Equity Tier I Capital (to risk-weighted assets)										Common Equity Tier I Capital (to risk-weighted assets)
Cass Information Systems, Inc.										Cass Information Systems, Inc.	243,774		12.80		85,672		4.50		N/A	N/A
Cass Commercial Bank										Cass Commercial Bank	172,848		14.86		52,337		4.50		75,598	6.50
Tier I capital (to risk-weighted assets)										Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc.										Cass Information Systems, Inc.	243,774		12.80		114,229		6.00		N/A	N/A
Cass Commercial Bank										Cass Commercial Bank	172,848		14.86		69,783		6.00		93,044	8.00
Tier I capital (to average assets)										Tier I capital (to average assets)
Cass Information Systems, Inc.										Cass Information Systems, Inc.	243,771		9.52		102,386		4.00		N/A	N/A
Cass Commercial Bank										Cass Commercial Bank	172,848		10.77		64,196		4.00		80,245	5.00

~~Inflation~~

The Company’s assets and liabilities are primarily monetary, consisting of cash, cash equivalents, securities, loans, payables and deposits. Monetary assets and liabilities are those that can be converted into a fixed number of dollars. The Company's consolidated balance sheet reflects a net positive monetary position (monetary assets exceed monetary

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liabilities). During periods of inflation, the holding of a net positive monetary position will result in an overall decline in the purchasing power of a company. Management believes that replacement costs of equipment, furniture, and leasehold improvements will not materially affect operations. The rate of inflation does affect certain expenses, such as those for employee compensation, which may not be readily recoverable in the price of the Company’s services.

Impact of New and Not Yet Adopted Accounting Pronouncements

~~There~~In March 2022, the FASB issued ASU 2022-02. This ASU eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL methodology for estimating allowances for credit losses and enhances the disclosure requirements for loan restructurings made with borrowers experiencing financial difficulty. Instead, entities are norequired to evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new ~~accounting pronouncements that are applicable~~loan or continuation of an existing loan. In addition, the amendments require a public business entity to disclose current period gross charge-offs for financing receivables and net investment in leases by year of origination in the ~~company and/or materially~~vintage disclosures. ASU 2022-02 was effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The implementation of this ASU effective January 1, 2023 did not have a material impact on the ~~Company.~~consolidated financial statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As described in the Company’s ~~Annual Report on~~2022 Form 10-K for the year ended December 31, ~~2021,~~2022, the Company manages its interest rate risk through measurement techniques that include gap analysis and a simulation model. As part of the risk management process, asset/liability management policies are established and monitored by management.

The following table summarizes simulated changes in net interest income versus unchanged rates over the next 12 months as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022.


		% change in projected net interest income						% change in projected net interest income
			September 30, 2022		December 31, 2021				June 30, 2023		December 31, 2022
+200 basis points	+200 basis points		13.1	%	20.6	%	+200 basis points		12.7	%	10.6	%
+100 basis points	+100 basis points		5.5	%	10.2	%	+100 basis points		7.4	%	4.2	%
Flat rates	Flat rates		—	%	—	%	Flat rates		—	%	—	%
-100 basis points	-100 basis points		(2.5)	%	(2.5)	%	-100 basis points		(3.3)	%	—	%
-200 basis points	-200 basis points		(11.9)	%	N/M		-200 basis points		(5.7)	%	(1.5)	%

The ~~decrease in~~Company is generally asset sensitive as average interest-earning assets of $2.0 billion for the second quarter of 2023 greatly exceeded average interest-bearing liabilities of $512.5 million. The table above on the projected ~~net interest income in a rising~~impact of interest rate ~~environment~~shocks results from ~~December 31, 2021 to September~~a static balance sheet at June 30, 2022 is primarily due to the purchase of $155,119,000 in U.S. treasury bonds throughout the first nine months of 2022. These bonds mature over a one to two year period and were purchased utilizing available liquid cash and cash equivalents.2023.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s management, under the supervision and with the participation of the principal executive officer and the principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report and concluded that, as of such date, these controls and procedures were effective.

There were no changes in the ~~Third Quarter~~second quarter of ~~2022~~2023 in the Company's internal control over financial reporting identified by the Company’s principal executive officer and principal financial officer in connection with their evaluation that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended).

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is the subject of various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of business. Management believes the outcome of all such proceedings will not have a material effect on the businesses or financial conditions of the Company or its subsidiaries.

ITEM 1A. RISK FACTORS

The Company has included in Part I, Item 1A of its ~~Annual Report on~~2022 Form 10-K, ~~for the year ended December 31, 2021,~~ a description of certain risks and uncertainties that could affect the Company’s business, future performance or financial condition (the “Risk Factors”). ~~There~~Except as set forth below, there are no material changes to the Risk Factors as disclosed in the Company’s ~~2021 Annual Report on~~2022 Form 10-K.

The Company could experience an unexpected inability to obtain needed liquidity which could adversely affect the Company's business, profitability, and viability as a going concern.

Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits, and to take advantage of interest rate market opportunities and is essential to a financial institution’s business. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets, and its access to alternative sources of funds. The bank failures in March 2023 exemplify the potential serious results of the unexpected inability of insured depository institutions to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an institution's ability to satisfy its obligations to depositors. The Company seeks to ensure funding needs are met by maintaining a level of liquidity through asset and liability management. If the Company becomes unable to obtain funds when needed, it could have a material adverse effect on its business, financial condition, and results of operations.

Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system.

The recent high-profile bank failures have generated significant market volatility among publicly traded bank holding companies. These market developments have negatively impacted customer confidence in the safety and soundness of regional banks. As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations. While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of these recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly.

Rising interest rates have decreased the value of the Company’s available-for-sale securities portfolio, and the Company would realize losses if it were required to sell such securities to meet liquidity needs.

As a result of inflationary pressures and the resulting rapid increases in interest rates over the last year, the fair value of previously issued government and other fixed income securities has declined significantly, resulting in unrealized losses. While the Company does not currently intend to sell these securities, if the Company were required to sell such securities to meet liquidity needs, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S. Treasuries, agency debt, mortgage-backed securities, and other qualifying assets as collateral at par to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in addressing liquidity needs as they arise.

Any regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking industry could increase the Company’s expenses and affect the Company’s operations.

The Company anticipates increased regulatory scrutiny and new regulations designed to address the recent negative developments in the banking industry, all of which may increase the Company’s costs of doing business and reduce its

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profitability. Among other things, there may be an increased focus by regulators on deposit composition and the level of uninsured deposits. As primarily a commercial bank, the Bank has a higher degree of uninsured deposits compared to larger national banks or smaller community banks with a stronger focus on retail deposits. As a result, the Bank could face increased scrutiny or be viewed as higher risk.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~During the three months ended June 30, 2023, the Company repurchased a total of 63,305 shares of its common stock pursuant to its treasury stock buyback program, as follows:


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2023–April 30, 2023	13,678	$	37.10	13,678	327,029
May 1, 2023–May 31, 2023	45,921	37.56		45,921	281,108
June 1, 2023–June 30, 2023	3,706	39.13		3,706	277,402
Total	63,305	$	37.55	63,305	277,402

(1)All repurchases made during the quarter ended June 30, 2023 were made pursuant to the treasury stock buyback program, authorized by the Board of Directors on October 19, 2021 and announced by the Company on October 21, 2021. The program provides that the Company may repurchase up to an aggregate of 750,000 shares of common stock and has no expiration date.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

(a)None.

(b)There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors implemented in the ~~Third Quarter~~second quarter of ~~2022.~~2023.

(c)During the three months ended June 30, 2023, none of the Company's officers or directors adopted or terminated any "Rule 10b5-1 trading arrangement" or any “non-Rule 10b5-1 trading arrangement,” as such terms are defined under Item 408 of Regulation S-K.

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ITEM 6. EXHIBITS


Exhibit 10.1 Cass Information Systems, Inc. 2023 Omnibus Stock and Performance Compensation Plan, incorporated by reference to Exhibit 10.1 to the current report on Form 8-K, filed with the SEC on April 21, 2023.*

Exhibit 10.2 Form of Employee Restricted Stock Award Agreement under the Cass Information Systems, Inc. 2023 Omnibus Stock and Performance Compensation Plan, incorporated by reference to Exhibit 10.2 to the current report on Form 8-K, filed with the SEC on April 21, 2023.*

Exhibit 10.3 Form of Non-Employee Director Restricted Stock Award Agreement under the Cass Information Systems, Inc. 2023 Omnibus Stock and Perfo r m ance Compensation Plan, incorporated by reference to Exhibit 10.3 to the quarterly report on Form 10-Q filed with the SEC on May 9, 2023.

Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 101.INS XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Exhibit 101.SCH Inline XBRL Taxonomy Extension Schema Document.

Exhibit 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Exhibit 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.

Exhibit 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.

Exhibit 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.

Exhibit 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*Management contract or compensatory plan arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	CASS INFORMATION SYSTEMS, INC.

DATE: ~~November~~August 7, ~~2022~~2023	By	/s/ ~~Eric~~Martin H. ~~Brunngraber~~Resch
		~~Eric~~Martin H. ~~Brunngraber~~Resch
		~~Chairman~~President and Chief Executive Officer
		(Principal Executive Officer)



DATE: ~~November~~August 7, ~~2022~~2023	By	/s/ Michael J. Normile
		Michael J. Normile
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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